New York State Department of Financial Services Issues to Its Regulated Institutions a Request for Assurance of Preparedness for LIBOR Transition

Sullivan & Cromwell LLP - December 30, 2019
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The New York State Department of Financial Services (the “DFS”) has issued a statement highlighting the importance of preparing for the likely discontinuation of the London Interbank Offered Rate (“LIBOR”) at the end of 2021. The DFS stated that it was “taking action to ensure that regulated institutions’ boards of directors, or the equivalent governing authorities, and senior management fully understand and have assessed the risks associated with the potential cessation of LIBOR, have developed an appropriate plan to manage them, and have initiated actions to facilitate transition to alternative reference rates.” The DFS is requiring its regulated entities to submit to the Department their plans to address their LIBOR transition risk management plan by February 7, 2020.

The DFS requirements apply to its regulated banks, credit unions, savings associations, property, health and life insurance companies, pension funds, licensed lenders, sales and premium finance companies, mortgage companies, money transmitters, and virtual currency companies.

The plan to be submitted by each regulated institution is to describe (1) programs that would identify, measure, monitor and manage all financial and non-financial risks of transition, (2) processes for analyzing and assessing alternative rates, and the potential associated benefits and risks of such rates both for the institution and its customers and counterparties, (3) processes for communications with customers and counterparties, (4) a process and plan for operational readiness, including related accounting, tax and reporting aspects of such transition, and (5) the governance framework, including oversight by the board of directors, or the equivalent governing authority, of the regulated institutions.