BIZweek n°329 11 fév 2021
BIZweek n°329 11 fév 2021
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  • Parution : n°329 de 11 fév 2021

  • Périodicité : hebdomadaire

  • Editeur : Capital Publications Ltd

  • Format : (260 x 370) mm

  • Nombre de pages : 7

  • Taille du fichier PDF : 1,7 Mo

  • Dans ce numéro : les banques se préparent à l'arrêt du Libor en 2021.

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JEUDI 11 FÉVRIER 2021 BIZWEEK ÉDITION 329 LA TOUR FINANCIAL DECISION Banks are preparing for cessation of the LIBOR in 2021 LIBOR (London Interbank Offered Rate) is derived from a daily survey of bankers who estimate how much they would charge each other to borrow. It’s used to help determine the cost of borrowing around the world, from student loans and mortgages to interest-rate swaps and collateralized loan obligations. In the wake of the 2008 financial crisis, regulators discovered that lenders had been manipulating the rates to their advantage, resulting in billions of dollars of fines. For over three years, policymakers worldwide have been developing new benchmarks to replace LIBOR by the end of 2021 The Financial Conduct Authority (FCA) has recently reiterated that ‘2021 is the critical year for firms to complete their transition away from LIBOR’. This transition was first announced in 2017, and in 2019 we saw regulators and industry bodies expressing a greater sense of urgency in calling on market participants to avoid delaying preparations. Since then, and notwithstanding any disruption as a result of the COVID-19 pandemic, there have been ongoing developments to support the transition away from the London Interbank Offered Rate (LIBOR). Concerns about benchmark rates have been swirling for years. Indeed, even before the LIBOR scandal hit in 2012, unsecured wholesale borrowing activity had been in decline. And that meant that the rates were becoming increasingly subject to ‘expert judgment’. As the LIBOR scandal made immensely clear, the potential for manipulation was high. When, in July 2017, the UK’s Financial Conduct Authority (FCA) announced it would no longer compel panel banks to make LIBOR submissions after 2021, the writing was on the wall  : the IBORs’days were numbered. Over the past year, it has become increasingly clear that global regulatory preference was a benchmark replacement favoring risk-free rate (RFR) based on transactional data. Central banks have encouraged industry working groups to formto help solve issues arising from establishing and then transitioning to a new more trustworthy benchmark rate. In the run-up to 2021, working groups and several industry advocates have been working diligently to ensure that the new rates have established robust underlying cash markets, sufficient liquidity in hedging instruments, broad acceptance from market participants and are devoid of past issues. No small feat While on the surface this may seem like a ‘find and replace’exercise, the reality is that the shift from IBORs to RFRs will be Global banks warnof market chaos should court abolish LIBOR significant. IBORs currently underpin a huge range of financial products and valuations, from loans and mortgages through to securitizations and derivatives across multiple jurisdictions. They are used in determining all sorts of tax, pension, insurance and leasing agreements. And they are embedded in a range of finance processes such as renumeration plans and budgeting tools. Not surprisingly, the volumes that will be impacted by this change are enormous. According to the Financial Stability Board, there were more than US$370 trillion worth of notional contracts that — in some way or other — were tied to LIBOR, EURIBOR or TIBOR in 2014. And that number has grown since then. The impact willalso be felt far and wide. The challenge will be particularly acute for central counterparties, exchanges, investment banks, retail banks, insurers, broker-dealers, hedge funds, pension funds and asset managers. But the ripple effects willalso be felt by corporations and consumers as the shift changes valuations on everything from derivatives and corporate bonds through to business and consumer loans. New challenges emerge Some of the world’s biggest banks are urging a U.S. judge not to immediately terminate LIBOR after a group of borrowers filed suit claiming the benchmark was the work of a « price-fixing cartel. » Defendants in the case, including J.P. Morgan Chase, Credit Suisse Group and Deutsche Bank, said in a November filing that an injunction abruptly ending the London interbank offered rate would wreak havoc on financial markets and undermine years of work reforming the reference rate. The plaintiffs, which include 27 consumer borrowers and credit card users, are also seeking monetary damages. Attorneys not involved in the case say the chances of an injunction are slim. Yet it underscores the risks and legal costs for banks that continue to propup LIBOR, which stillunderpins hundreds of trillions of dollars of financial assets around the world. It also highlights the fragility of the discredited benchmark, which in theory could be halted by a single court decision. The plaintiffs want LIBOR to beeither prohibited or set at zero with borrowers repaying capital but not interest. The banks said in filing that none of the plaintiffs have shown that they ever paid interest based on LIBOR, adding that the suit is built on « baseless theories of antitrust liability. » Regulators have warned that even a temporary disturbance of LIBOR could devastate financial markets, the banks’attorneys said. Organizations including the International Swaps and Derivatives Association and the U.S. Chamber of Commerce are supporting the banks. In a separate filing, they argue that without mechanisms to determine future borrowing costs, parties would spend « substantial resources » negotiating price schedules, and could be forced to use fixed rates. [Source  : Pensions & Investments ; 13 January 2021] There is still significant uncertainty about how the transition to RFRs will pan out. There are currently Working Groups for each of the five LIBOR currencies4 (representing the US dollar, the UK pound sterling, the Japanese yen, the Swiss franc and the Euro) with responsibility for developing alternative RFRs to LIBOR within their home jurisdictions. The market challenges that this is creating seem daunting. Working Group members, key end users and other market participants are working hard to create markets for new instruments that are underpinned by the RFRs. Liquidity in these rates need to build to ensure a successful transition. This ultimately requires impetus from end users to transition away from IBORs, which have been embedded in systems and processes for over 3 decades. For multinational and global financial institutions, the task will be exponentially more complex. In part, this is because there will likely be significant regional differences, timelines and approaches to the transition. In the US, for example, the Alternative Reference Rates Committee (ARRC) is tracking against a ‘paced transition plan’for moving USD LIBOR exposures to SOFR (the alternative RFR proposed for the US) ; in the UK, urgency has been heightened by a Dear CEO letter circulated by the PRA and the FCA ; for the Euro area, the ECB Working Group is currently looking to mitigate the potential of a ‘cliff edge event’for EONIA and EURIBOR when the EU Benchmark Regulation transition period finishes on 1 January 2020. Most financial institutions willalso need to grapple with some of the ‘knock-on’impacts of the shift away from IBORs. Consider, for example, how the new rates may influence hedge accounting practices at many financial institutions. In the US, the FASB has already proposed adding SOFR to the list of interest rates that may be eligible for hedging. How the other new RFRs will influence hedge accounting remains to be seen. [Sources  : KPMG Mauritius, international press] USD LIBOR Transition Period Extended Through 2023 It had been recommended that the US Dollar (USD) London Interbank Offered Rate (LIBOR) be replaced by the Secured Overnight Financing Rate (SOFR) as a primary benchmark index. LIBOR is used as an index to calculate interest rates in many financing agreements and most interest rate swaps. However, SOFR is a recommended, not required, new benchmark with banks permitted to select their own new benchmarks. Objective SOFR spreads are not yet available and, when available, will only be recommended, not required, with banks permitted to select their own new interest rates at their sole discretion. The impending transition is expected to disrupt worldwide financial markets. This is expected to pose significant challenges and risks to financial institutions and their borrower clients. This will impact any and all non-financial institution companies that have outstanding interest rate swaps and/or loans tied to LIBOR. It is likely that many of these companies are unaware of the proposed transition. Executing what these companies may be provided by their financial institutions, as ‘standard forms,’will have significant financial and legal ramifications for years to come, and will likely be the subject of major litigation. Financial institutions now have the documentation in place to start implementation immediately. Once this documentation is in place, it will be very difficult to change or revoke absent protracted litigation/arbitration. While the effective date was previously set for December 31, 2021, it was recently announced that the transition period has been extended through June 2023, presumably due to both the lack of readiness and the complexity of the transition process. [Source  : ; 25 January 2021] 4
JEUDI 11 FÉVRIER 2021 BIZWEEK ÉDITION 329 DETECTION OF DISEASE Disrupting the power balance between doctors and patients in the digital era The primary way of identifying symptoms of impending disease, and when it is time to seek care, relies heavily on a patient’s own perception of how they feel. This reliance on a disease reaching a threshold at which subjectively recognized symptoms are produced creates a situation in which many patients identified as at risk for disease are already experiencing chronic disease. Thus, substantial delays can be seen from the first noticing of symptoms to accurate diagnosis. The COVID-19 pandemic has highlighted the inadequacy of subjective approaches for early detection of disease and control of the spread of infectious diseases. The capabilities of wearable devices and smartphone sensors to collect high-dimensional objective information and return this information to patients offers an opportunity to disrupt our current ways of detecting, classifying, and treating disease. Yet, current definitions of, and approaches used to detect, signs and symptoms of disease are misaligned with these new digital approaches Symptoms encompass the subjective sensation of the presence of disease  : the patient must be aware of the symptom. Objective measures of health are considered signs observable by doctors, such as a skin rash, blood pressure reading, or biomarker of disease. Thus, rooted in this language, symptoms reported by patients must be subjective in nature whereas an objective measure cannot be a symptom. An important nuanced layer in these definitions is the role of the doctor—the expert who must be the observer and translator of objective signs of disease. Definitions aside, if patients were able to collect accurate objective measures of health themselves, and could track these measures independently, would these not be patient-generated signs and symptoms that could be adequate grounds for action ? New technology that allows patients to monitor measures of health that traditionally were defined as objective signs of disease, such as blood pressure, resting heart rate, heart rate variability, and activity, are changing the symptom reporting landscape. Up to now, the usual metrics tied to digital devices included physiological measures of activity (eg, steps or movement). These metrics are not clinical symptoms making them not so useful in their raw form. Electrical signals from digital sensors augmented by machine-learning techniques could be translated into momentary, minute-level, day-to-day, week-to-week fluctuating streams of high-dimensional health information. More efficient clinical decision-making POST SCRIPTUM Multimodal approaches that translate passive device sensor data streams to symptoms, which have been historically measured and understood through a subjective lens (eg, mood and cognition) are being developed. Further, rapid development of apps for this purpose is accelerating progress, such as the Share the Journey appfor breast cancer, and the mPower appfor Parkinson’s disease. The goal of these approaches is to translate complex sensor data into clinically meaningful patient-generated symptoms and signs that might improve individual early detection and surveillance and aid more efficient clinical decision-making. These new capabilities to detect objective measures of health that can be returned to individuals raise important questions on what constitutes a symptom. Symptoms could be detected without a patient’s awareness whereas objective signs could be detected without a doctor’s involvement or expert translation. Our old definitions of subjective symptoms and objective signs of disease simply do not work in the digital era. Participatory medical models New digital approaches also disrupt the traditional power balance between patients and doctors. Artificial intelligence enables devices to learncomplex patterns in day-to-day shifts in behaviour, cognition, emotion, physiology, and— with advancements in wearable biosensors—other measures of neuroendocrine activity. The ability to return this health information back to patients incites questions around the shifting role of the patient versus the medical expert. Indeed, discussion on the shift to participatory medical models calls into question our current top-down biomedical approaches, realising the powerful insights that can emerge from individuals themselves. This new digital environment accelerates participatory medical models, enabling patients to work alongside clinicians and, occasionally, take the lead in the management of their own health. Current medical models assume that patients can only parochially consider subjective aspects of their disease and not the objective facts needed by the doctor to make proper medical decisions. The prerequisite loop that requires the doctor to provide facts about a patient’s disease impedes progress towards participant co-driven health and is misaligned with the new capabilities of the digital era. Digital technology enables patients to feed their own generated objective health information into decision trees, making it reasonable to assume that patients should be able to trigger medical decision making outside the current prerequisite loop. Challenging effort Finally, new technologies enable potential detection of early disease manifestations not typically associated with subjectively detectable disease activity. This possibility has powerful implications for the area of infection diseases with respect to objective early detection of infection. For example, studies utilising wearable devices are showing promise in early detection of COVID-19 in asymptomatic individuals who show changes in heart rate, activity, and sleep. How will new digital ways of detecting and tracking disease fit into health systems and the everyday life of users ? This integration willundoubtedly comprise a concerted and challenging effort that could revolutionise the health of individuals and populations. Approaches are still in an early phase, with much validation work being needed. Extensive pilot testing of the feasibility, acceptability, validity, and reliability in the use of these tools in patients, health-care providers and most importantly groups that are less likely to engage to avoid widening health inequalities is needed alongside rigorous data governance models. Potentially, the largest obstacle to progression of digital health approaches lies in compatibility with existing medical approaches, classifications of disease, and mistrust in readouts from digital devices. Ensuring the readout from digital devices is accurate and interoperable will be a first step in removing this obstacle. To make individualised and patient co-driven care a reality, a major shift is needed with respect to how patients are enabled to report on their health and, in parallel, how we conceptualise evidence of disease. Published  : January 27, 2021 SARAH M GOODDAY, JOHN R GEDDES, STEPHEN H FRIEND The Lancet Digital Health 5

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