Insight

Banking on a faster way to assess LIBOR risk

The KPMG Ignite Securities Analyzer can help you quickly assess risk for your LIBOR portfolios simply by providing a security identifier.

Anthony Sepci

Anthony Sepci

Partner, Advisory, Modeling and Valuation, KPMG US

+1 213-955-8665

Michael Ohlweiler

Michael Ohlweiler

Partner, Advisory, Modeling & Valuation, KPMG US

+1 716-796-6029

Beginning in 2021, the London Inter-Bank Offered Rate (LIBOR) will start to transition away from being the benchmark rate used by global financial firms to determine interest rates on derivatives and cash products. This represents a U.S. $400 trillion problem across all firms exposed.

The problem becomes particularly acute for those managing publicly traded assets such as treasury groups, asset managers, pension funds, or insurance companies. These firms must review a high volume of disparate and hard to find documents to better understand the impact to their portfolios as a result of the transition—and complete the analysis before the transition deadline. With thousands of contracts to be reviewed, the number of resources collectively needed to do this manually would translate into years of work and expense.

 

KPMG has come up with an automated solution

In early 2020, the KPMG Lighthouse team introduced an automated risk analysis tool that uses machine learning and natural language processing to analyze contracts against a specific set of questions and extract key language that can help businesses score the risk associated with LIBOR-based contracts. The KPMG Ignite Securities Analyzer has pre-analyzed thousands of publicly traded documents, allowing our clients to quickly assess risk for their LIBOR portfolios simply by providing a security identifier. The tool is also equipped with an interface that allows clients to add and subtract securities as needed. Our clients simply provide KPMG with the unique identification codes for the assets they want to look up, and the Analyzer provides the information the company requires to help score the risk associated with each contract. KPMG turns around the contract reviews quickly—what normally would have taken days or months for each contract type turns into hours—with the added benefit that it accurately identifies more than 95 percent of the documentation needed for publicly traded securities.

Benefits

By leveraging the automated KPMG Ignite Securities Analyzer tool, KPMG clients have achieved greater efficiency, increased speed, and lowered costs. Our clients are now able to:

  • turn many months of review time into a matter of days to obtain the results needed
  • achieve contract review efficiency and accuracy on more than 95 percent of public securities that are indexed to LIBOR; the Analyzer’s technology is quickly able to identify, assess, and report on the applicable cessation and fall back language
  • save thousands of dollars on possible legal and labor costs by using a solution that was aggressively priced for the market and takes advantage of
  • pre-analyzed publicly traded documents
  • strategically position portfolios for the future by determining what to do differently downstream
  • make better-informed decisions by analyzing the best market entrance and exit strategies
  • quickly adopt the Securities Analyzer to support privately placed securities and syndicated loans indexed to LIBOR given the consistency and similarity in legal terminology used in these documents and contracts.

Why KPMG?

Unique ability to perform at scale

The Securities Analyzer, which runs on the KPMG Ignite platform, has been developed to handle massive quantities of information. Because many documents are pre-scored, the turnaround time is hours instead of weeks and months.

Confidence in our experience with automation and financial processes

KPMG took advantage of its experience with the LIBOR review process, along with its knowledge of machine learning and financial systems, to build a tested solution that quickly provides output.

Testing for accuracy

KPMG continuously reviews results from the Securities Analyzer, incorporating changes and modifications that improve efficiency and accuracy.