Banner image 5
Financial services firms are grappling with transition away from IBORs but what kinds of conduct risks can they expect to face as a result of this? And how can these risks be managed effectively? In the first of a series of blogs exploring key themes in the PRA & FCA’s Feedback on the Dear CEO letter on LIBOR transition we consider these issues.

New patterns of misconduct?

As the transition away from using Interbank Offered Rates (IBORs) progresses, history shows us that it is fair to expect that familiar risks of market and customer misconduct will resurface - albeit that they are likely to manifest differently.

This being the case, risks of misleading clients, market abuse (including insider dealing and market manipulation), anti-competitive practices, both during and after transition (such as collusion and information sharing) and risks arising from conflicts of interest, are all likely to reappear.

And if the experience of the interest rate hedging products (IHRP) mis-selling scandal is anything to go by, failures to both adequately investigate customers’ understanding of risks and disclose relevant risks, the inadvertent straying from non-advised sales of IBOR/alternative risk free rates (ARFR) products into advised sales (without, for example, satisfying suitability and appropriateness requirements) are all risks that we expect to re-emerge.

New challenges

With familiar conduct risks expected to manifest differently across firms’ different lines of business, firms will need to ensure that they adequately address them. They can do this by assessing carefully, within their respective lines of business, both where and when transition away from IBORs to ARFRs gives rise to such risks, whilst also ensuring that they capture the finer details of such risks. But how should firms approach this in practice?

First, with the IBOR transition including solutions for ARFR term rates in its early stages, the precise route which the market will take to reach the destination remains unclear. This reinforces the importance of firms adopting both a dynamic and ongoing focus on assessing and mitigating conduct risks arising during the transition. Moreover, firms should ensure that this is underpinned by robust top-down and bottom-up management information (MI).

Second, the specifics of firms’ businesses, customers and operations mean that assessing and identifying conduct risk are more likely to be effective if primary responsibility for this lies with the first line of defence rather than compliance or risk functions.

Third, in assessing potential conduct risks arising from the IBOR transition, firms will need to consider the interests of their individual customers and counterparties with a view to identifying conduct risks that may arise when providing different products and services to them. This will include assessing the different levels of financial sophistication (and understanding of the changes to IBORs being made) that they have. Firms should also look at the potential impact transition may have on their customers, the capacities in which they are acting and the regulatory requirements attaching to products together with the relevant jurisdiction(s).

This granular analysis should be complemented by a top-down view of where the key risks are likely to arise. There are a number of FCA principles that are particularly relevant in this respect, including:

  • proper standards of market conduct;
  • fair management of conflicts of interests;
  • treating customers fairly;
  • clear, fair and not misleading communications; and
  • the suitability of advice and discretionary decisions.

This is yet another example of where lessons from past misconduct cases can provide very useful input. The FCA’s findings from its Conduct Questions Feedback for example, highlight overreliance on legal disclaimers as a way of managing risk as a relevant concern.

Of course all of the above is of limited value unless firms actually address the identified risks. Firms should therefore work towards putting in place mitigation plans and implementing and embedding robust conduct risk solutions, whilst also continuing to review those risks stemming from the IBOR transition as the process evolves.

Key conduct risk considerations

Each firm’s assessment and mitigation of conduct risks arising during the IBOR transition will be both specific and tailored to their business and clients. In undertaking this firms will need to consider a range of key issues. Some of these are highlighted in the table below.


Key considerations for firms







  • Firms should adopt tailored external engagement strategies (in addition to internal engagement strategies). This should include mapping of communication triggers.
  • Firms should segment customers based on their IBOR transition information needs and financial sophistication.
  • Firms should centralise collection and recording of feedback, preferences and responses.
  • Disclosures should be comprehensive and clear in relation to risks and product characteristics. They should be appropriately calibrated according to client sophistication and should enable clients to understand the implications of relying on fallbacks. They should be prepared on a client-by-client basis.
  • New IBOR referencing business - clients should have a full and clear picture of risks. Likely to involve case-by-case discussions.



  • Firms should ensure that fallback clauses are fit for purpose and assess whether value transfer, including changes in margin and spread, could still lead to client detriment.
  • Contracts and other documents should not over-rely on legal disclaimers as a way of managing risks.



Sales process

  • Firms should take steps to limit inadvertent recommendations in relation to products when sales staff are providing information about IBORs/ARFRs as part of a non-advised sales process.
  • Suitability and appropriateness assessments should be undertaken where recommendations are made and in other circumstances where regulations require them.
  • Training should be targeted and ongoing for high exposure staff.



  • Focused and continual review of the front office/first line surveillance and control arrangements should be considered to ensure these remain robust throughout the IBOR transition.
  • This should be adapted over time to reflect declining IBOR liquidity and increasing RFR liquidity.






Product governance

  • Approval of new ARFR products should give equal consideration to client outcomes resulting from transition from IBOR In other words when ARFR products are issued while IBORs continue to exist firms should ensure that customers understand the difference (e.g. the spread between LIBOR and ARFR), the effect on the product (e.g. valuation, profit and loss, volatility etc.) to ensure clients fully understand what they are buying.
  • Firms should be reviewing their continued issuance of current IBOR-linked products that extend beyond the end of 2021 and assessing the timing of their transition to ARFRs. This is in order to guard against customer harm and address customer needs and suitability where relevant, especially where robust fallbacks are not in place.
  • Firms should prioritise financial management of client portfolios on the basis of client types.
  • Firms should appropriately manage risks and customer suitability and value for money.






Internal processes should identify and manage conflicts of interest risks. Danger zones include:

  • where firms administer their own significant benchmarks/have an IBOR rate-setting/contribution role – particularly in less liquid markets;
  • the control of access to any exposure analysis showing specific client information about the potential “winners and losers” from the transition; and
  • where firms are aware of customer intentions with regard to IBORs/ARFRs and these intentions have a negative impact on proprietary/personal positions or lend themselves to being exploited with a view to making a profit.
  • Identified conflicts should be disclosed.





Governance, culture and controls

  • Firms should appropriately assign accountability for the management of conduct risk for the purposes of IBOR transition and ensure board and senior management level support for the individual accountable for IBOR transition/their team.
  • In relation to escalation processes, senior managers should be sufficiently expert to provide oversight and governance.
  • Larger firms are setting up IBOR conduct risk working groups.
  • Leadership should promote a culture of “psychological safety”, encouraging staff to escalate conduct concerns or, where appropriate, use whistleblowing procedures.
  • Firms should identify and establish appropriate controls for transition specific conduct risks.

Rewards and incentives

  • The incentive and reward structures for all levels of staff most involved in transition should take into account their performance in identifying and managing conduct risks.



  • Strong IBOR transition MI should highlight top-down and bottom-up insights into the conduct risk environment and facilitate oversight and decision-making.
  • MI should also reflect the fact that conduct risks will continue to evolve during and after the IBOR transition.


Record keeping

  • Firms should appropriately evidence client actions and decisions.
  • For non-advised sales in particular, firms should capture client confirmations about their review of IBOR holdings and any decisions made to prove these are coming from the client.


  • IBOR transition related complaints should be identified and addressed in a timely manner.

Lessons learned

The transition away from IBORs will involve overcoming many challenges, including ensuring that market abuse and misconduct seen in the past are not repeated.

Firms should therefore ensure that they robustly identify and mitigate conduct risks arising during the transition, that the first line of defence assesses and tackles them and that the interests of customers remain integral to firms’ decisions and communications.

Transition programmes should also be based on the assumption that LIBOR will end at the end of 2021 and should additionally incorporate comprehensive and appropriate communication programmes.

Moreover, drawing on similarly significant past regulatory change initiatives, risk conscious leadership, strong and specific governance arrangements for IBOR conduct risk, the deployment of good customer-centric judgment and sound documentation/record-keeping, will all be critical success factors for firms.

As the famous statesman Edmund Burke once said, “those who don’t know history are destined to repeat it”. There is plenty of historical information available to firms about potential conduct pitfalls. Firms are certainly not destined to repeat past failings - provided they act on past information, adapt it to the specifics of the transition to ARFRs and embed robust conduct risk management, mitigation and monitoring throughout the transition.




Mark Cankett - Partner, Banking & Capital Markets, Audit & Assurance

Mark is a Partner in our Banking & Capital Markets Audit Group in London. He is a leading member of our Benchmarks Assurance & Advisory team and a co-Chair of Deloitte’s Global IBOR Reform Steering Committee. Mark has 16 years’ experience across financial services audit and assurance, regulatory compliance, regulatory investigations and financial services disputes. This experience has provided him with a strong technical understanding of wholesale markets, financial benchmarks and related risk and control frameworks. His experience across the industry with respect to IBOR reform has provided him with a unique perspective on the regulatory reform agenda and he is actively assisting clients in this space at present.

Email | LinkedIn 


Stephen Farrell - Partner, Audit & Assurance

Stephen is a Partner in our Banking & Capital Markets Audit and Assurance Group and has a leadership role in the Firm’s financial benchmark assurance and advisory engagements. He has extensive experience in financial services audit, internal audit, and regulatory projects. He has worked with a range of banking institutions, having developed a thorough technical understanding of banking products and treasury control practices. He sits on a committee of the FICC Markets Standards Board, the Bank of England SONIA Sub Working Group focusing on Communications & Outreach, and Co-Chairs the Deloitte Global LIBOR Transition Steering Committee.

Email | LinkedIn 


Ed Moorby - Partner, FS Risk Advisory

Ed leads Deloitte UK’s Regulatory Change Delivery Team who focus on helping clients understand the practical implications of regulation, how they should respond, and the nature and scale of the implementation project. He co-leads Deloitte’s global team supporting clients respond to IBOR transition and is a member of the Bank of England’s Outreach and Communication sub-group.

Email | LinkedIn 


Tom Berrington - Associate Director, Financial Services

Tom is a Associate Director in our Financial Services group. He is an specialist in emerging regulatory change focusing on IBOR transition conduct risk. He has in-depth knowledge and experience across a wide range of areas including compliance, regulatory policy, operating model transformation, risk and control frameworks. With two decades of experience working in the industry Tom has worked at the forefront of developing and implementing solutions that address significant new regulatory changes such as Treating Customers Fairly and the structural reform of banking.

Email | LinkedIn 

Hina Majid - Senior Manager, EMEA Centre for Regulatory Strategy

Hina Majid is a Senior Manager in the EMEA Centre for Regulatory Strategy. She specializes in sustainable finance and capital markets regulation/policy. She is a qualified lawyer and holds: an LLM in banking law and financial regulation (LSE), an MSc in human rights (LSE), Certificate in Business Sustainability Management (Cambridge University) and the Certificate in Green Finance (Chartered Banker Institute). She has previously worked for various wholesale banks and in the not for profit sector on human rights issues.

Email | LinkedIn 


Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.


Post a comment

Comments are moderated, and will not appear until the author has approved them.