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May 11, 2023 

Observations from Examinations of 

Investment Advisers and Investment Companies 

Concerning LIBOR-Transition Preparedness1

I. Introduction

U.S. Dollar LIBOR, formerly the London Interbank Offered Rate, is scheduled to be discontinued 

after June 30, 2023 (“Cessation Date”). In anticipation of this transition, the Division performed 

a series of examinations to assess registrants’ preparedness for the cessation of LIBOR, and staff

of the Divisions of Investment Management and Trading and Markets subsequently issued a 

statement regarding considerations for market participants.

2

 This alert focuses on exams of

registered investment advisers and investment companies (“firms”) and aims to remind firms of 

the transition as well as summarize some observations from the Division staff (“Staff”) in the 

recent examinations. 

The types of firms reviewed in these examinations included: (i) advisers associated with large 

bank complexes; (ii) advisers to various types of registered investment companies (i.e., mutual 

funds, closed-end funds, exchange-traded funds, and business development companies); (iii) 

small, medium, and large fund complexes; (iv) advisers to private funds that invest in private 

credit, such as collateralized loan obligations; and (v) large retail-oriented advisers. 

II. Observations Concerning Firms’ Practices

Firms’ preparation efforts varied considerably, depending on the type and amount of LIBOR 

exposure. Most of the examined firms had significant direct exposure to LIBOR-linked contracts. 

A few, which had large retail client bases, had more limited and indirect exposure. The Staff 

observed certain practices firms have implemented to address the transition away from LIBOR. 

 

1

 This Risk Alert represents the views of the staff of the Division of Examinations, formerly known as the Office 

of Compliance Inspections and Examinations or OCIE (the “Division”). This Risk Alert is not a rule, 

regulation, or statement of the Securities and Exchange Commission (the “SEC” or the “Commission”). The 

Commission has neither approved nor disapproved the content of this Risk Alert. This Risk Alert, like all staff 

statements, has no legal force or effect; it does not alter or amend applicable law, and it creates no new or 

additional obligations for any person.

2

 See Division, Risk Alert - Examination Initiative: LIBOR Transition Preparedness (June 18, 2020); see also

OCIE, 2020 Examination Priorities; SEC Staff Statement on LIBOR Transition — Key Considerations for 

Market Participants (Dec. 7, 2021).
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A. Risk Management

• Treatment as an enterprise risk governance matter. Firms with significant 

exposures have formed cross-functional LIBOR transition working groups, often 

overseen by a risk governance committee, created detailed written transition plans 

with work streams and timelines, and completed comprehensive impact assessments 

on investment and operational exposures.

• Keeping informed and engaged in industry associations. Almost all examined firms 

are either members of the Alternative Reference Rates Committee (“ARRC”) or 

heavily rely on guidance it has provided. Several firms are also participating in 

LIBOR transition discussions with relevant industry groups.

• Internal training and guidance. Firms have made deliberate efforts to ensure that 

traders, portfolio managers, and client-facing representatives are kept informed and 

up-to-date concerning both the LIBOR transition generally and any internal policies, 

procedures or guidance. The nature and extent of training and guidance for such

personnel varied considerably based on level of transition impact as well as the firm’s 

business lines and client types.

B. Operations

• Active engagement with service providers, sub-advisers, and third-party 

managers. Firms have planned their level of engagement with service providers, 

sub-advisers, and third-party managers according to the importance of such entity to 

the firm’s business or the level of exposure at such entity. Many firms extensively 

worked with fund administrators and pricing or data providers to understand their 

transition readiness. Firms commonly used due diligence questionnaires to gauge 

transition readiness at sub-advisers and third-party managers.

• Extensive systems testing. Firms that require internal system updates have 

performed end-to-end testing to confirm systems can accommodate alternative 

reference rates (“ARRs”) currently used, or will be used post-transition. This is

intended to enable such firms to identify issues to remedy or workarounds needed to 

process ARRs prior to the Cessation Date.

• Reconciliation of settlements and payments. Several firms incorporated a rigorous 

reconciliation processes, aiming to ensure all the terms and conditions of the ARRs

were properly accounted for by counterparties and service providers.

C. Portfolio Management

• Early identification of LIBOR exposures. Where applicable, many firms took a 

global approach to contract identification, looking broadly at LIBOR exposure 
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across subsidiaries and affiliates. Most firms either created or utilized internal tools 

to track and monitor LIBOR and ARR exposure on a real-time or periodic basis. 

• Substantive review of fallback provisions. Many firms used third-party service 

providers with specialized skills in document review to identify fallback provisions.

Firms proactively assessed risks associated with the various fallback provisions, or 

lack thereof, and prioritized identifying and assessing contracts considered “tough 

legacy” that may be more challenging to transition, such as those with fallbacks that 

give discretion to a third party. 

• Internal controls and guidance concerning trading of LIBOR-linked contracts.

Firms considered what, if any, trading restrictions to place on new and legacy 

LIBOR-linked instruments and communicated their approaches to relevant 

personnel such as portfolio managers, compliance, etc. Some firms created internal 

controls such as pre-trade compliance checks or purchasing guidance. For example, 

certain firms created matrices that grouped investments into various “risk buckets” 

based on fallback language for ease of portfolio manager review in purchasing 

decisions. 

• Early transitioning of bank loans and other instruments. While many instruments 

may not be susceptible to early transition, or firms are not in the position to 

renegotiate them (e.g. situations in which the firm is not party to an underlying 

agreement), firms have been converting to ARRs where practicable and urging

counterparties to convert ahead of the Cessation Date. 

D. Fiduciary Responsibilities and Investor Communications 

• Fiduciary duty. With regard to firms’ approaches to fulfilling their fiduciary 

obligations in connection with the transition, the Staff observed advisers with large 

direct client exposure addressing the remediation of contracts, while advisers with 

indirect client exposure typically appeared to manage exposure through due 

diligence on third-party fund managers concerning their transition readiness.

• Assessment, disclosure, and mitigation of conflicts of interest and conduct risk. 

As part of their fiduciary duty, firms have considered conflicts of interest related to 

the transition including, for example, cross-trading, principal transactions, 

allocation of transition costs, and clients with conflicting priorities. Conduct risks 

identified have been monitored through firms’ compliance programs. 

• Risk disclosures. Firms with significant exposures included comprehensive 

disclosures for risks associated with the transition, such as legal, operational, credit, 

and regulatory risks.

• Information sharing with clients. The firms implemented a wide range of client 

communication and engagement strategies, depending on their businesses and their 

determinations of what information would be meaningful to their clients. Some

firms adopted a multifaceted approach, communicating frequently and proactively
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with clients that have greater exposures as well as making available more 

generalized disclosures on their website or in brochures and fund documents. 

E. Keeping Informed About Ongoing and New Challenges

As part of their management of the transition, firms have stayed abreast of ongoing and new 

challenges to a smooth transition, and are working to prepare accordingly. We note a few of them 

below. 

• Transitioning Bank Loans in Advance of June 30, 2023. The ARRC has encouraged 

market participants to remediate as many outstanding LIBOR-linked bank loans as 

practicable before the Cessation Date, to avoid a flood of contracts requiring 

individually negotiated amendments in mid-2023. 

• Complex Contracts and Synthetic LIBOR. A few complexes identified highly 

complex LIBOR-linked contracts that: (i) are issued overseas and not subject to the 

Adjustable Interest Rate (LIBOR) Act of 2021, and (ii) where no fallback language 

exists and/or transition via an amendment process is impracticable. It is likely that 

many of these contracts will now transition to a synthetic LIBOR.3

• Operational Challenges Associated with June 30, 2023 Cessation Date. Firms noted 

significant operational complexities associated with the conversion of LIBOR-linked 

contracts that will be transitioning, whether by hardwired fallback provisions, an 

amendment process, or the LIBOR Act for legacy contracts with no or impracticable 

fallback provisions (“tough legacy”). Firms recommended continued monitoring of 

the ARRC and other industry resources for guidance and tools in addressing these 

complexities.4

III. Conclusion 

Firms have made significant efforts to prepare for the transition away from LIBOR, implementing 

a variety of practices depending on their business models and client base. Additionally, as noted 

above, several challenges exist to a smooth and orderly transition away from LIBOR. The 

Division encourages all firms to be aware of such issues, including consideration of the resources 

necessary to address them, and to act consistent with their fiduciary obligations as they continue 

in the transition process.

 

3

 See FCA Decision on Synthetic US Dollar LIBOR, March 4, 2022.

4

 See, e.g., ARRC Announcement of LIBOR Replacement Index Communication Tool, March 13, 2023.
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