Finastra announced this week it has introduced additional alternative reference rates (ARR) and risk-free rates (RFRs) to its Fusion LIBOR Transition Calculator. The move enables banks, corporates and borrowers to calculate ARR in preparation for the end of the majority of LIBOR rates on Dec. 31. In addition to SOFR for the US dollar and SONIA for pounds sterling, the calculator service now incorporates ARR rates €STR for the euro, TONAR for the Japanese yen and RFR rate SORA for the Singapore dollar.
“As the LIBOR transition matures, we are seeing a range of new Risk-Free Rates emerging across the market. This will add additional complexity and cost to many organizations’ operations,” said Simon Thorogood, senior principal product manager, corporate and syndicated lending at Finastra. “Banks and corporate borrowers need to be fully prepared.
“They must ask themselves: Are they ready to source and calculate the new risk-free rates? Can they reconcile rates that are released by different authorities at different times? Do they have coverage of all the complex calculation methods that impact accruals? Finastra’s Fusion LIBOR Transition Calculator is fast to deploy and can help banks and corporates address all these challenges and help them to validate what is being sent to them.”
With the cessation of LIBOR at year end for the majority of currencies and tenors, Finastra said the Fusion LIBOR Transition Calculator service will help banks and corporates borrowers manage an easier to the new rates. The calculator uses a methodology based on accepted ARR market conventions.
Available through Finastra’s FusionFabric.cloud open innovation platform, the calculator service can be integrated with a bank’s existing lending systems. The use of Open APIs also facilitates integration with legacy systems that have not been prepared for the LIBOR transition and are unable to perform complex ARR calculations. The new calculated ARR rates can be directly consumed by these legacy applications, avoiding the need for complex and costly system changes.
“Minimizing the risk associated with the transition away from LIBOR to new risk-free rates is absolutely essential and any technology that can help simplify what could otherwise be a very complex process will be most welcomed by the industry,” said Patricia Hines, head of corporate banking for Celent.
The Fusion LIBOR Transition Calculator is available to all banks and corporates. Fusion Loan IQ offers compounding in arrears calculations and configurable parameters specifically for ARRs. The solution also supports the conventions recommended by the ARRC, BoE, LSTA and LMA, including enhanced usability and user efficiency features that include upcoming matrix functionality for credit spread adjustments.