January 27, 2023

Volume XIII, Number 27


January 26, 2023

Subscribe to Latest Legal News and Analysis

January 25, 2023

Subscribe to Latest Legal News and Analysis

January 24, 2023

Subscribe to Latest Legal News and Analysis

LIBOR Preparedness Exams Are Coming – Is Your Firm Ready?

  • The Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (OCIE) recently released a Risk Alert warning investment advisers, broker-dealers, investment companies, municipal advisors, transfer agents and clearing agencies (“registrants”) about prospective SEC exams focusing on their London Interbank Offered Rate (LIBOR) transition preparedness. (See “Examination Initiative: LIBOR Transition Preparedness” (Risk Alert)).1

  • This follows OCIE identifying, in January 2020, the preparedness for the transition away from the LIBOR as a current fiscal year SEC exam priority.2

  • The Risk Alert stated that “OCIE intends to engage with [investment advisers, investment companies and broker-dealers, among others] through examinations to assess their preparations for the expected discontinuation of LIBOR and the transition to an alternative reference rate. OCIE is issuing this Risk Alert to provide [firms] with additional information about the scope and content of these examinations.”

  • Firms and their compliance professionals should carefully review the Risk Alert and consider the firm’s LIBOR transition action plans.

LIBOR is used extensively as a benchmark rate to set interest rates for various commercial and financial contracts. It is expected that LIBOR will be discontinued after 2021. The discontinuation of LIBOR, as pointed out in the Risk Alert, “could have a significant impact on the financial markets and may present a material risk for certain market participants, including SEC-registered investment advisers, broker-dealers, investment companies, municipal advisors, transfer agents and clearing agencies.”


The OCIE exams will assess a firm’s efforts “to prepare for the expected discontinuation of LIBOR and [the firm’s] transition to alternative reference rates.” This will include a review of whether and how a firm has evaluated the potential impact of the LIBOR transition on the firm’s: (1) business activities; (2) operations; (3) services; and (4) customers, clients, and/or investors (collectively, “investors”).

The Risk Alert provides a roadmap of what OCIE will review when examining a firm, including:

  • the firm’s and investors’ exposure to LIBOR-linked contracts that extend past the current expected discontinuation date, including any fallback language incorporated into these contracts;

  • the firm’s operational readiness, including any enhancements or modifications to systems, controls, processes and risk or valuation models associated with the transition to a new reference rate or benchmark;

  • the firm’s disclosures, representations and/or reporting to investors regarding its efforts to address LIBOR discontinuation and the adoption of alternative reference rates;

  • identifying and addressing any potential conflicts of interest associated with the LIBOR discontinuation and the adoption of alternative reference rates; and

  • the clients’ efforts to replace LIBOR with an appropriate alternative reference rate.

Sample Exam Document Request List

Notably, OCIE included a sample examination document request list in an appendix to the Risk Alert. This sample list is available here.

Firms and compliance professionals, in particular, should carefully review the sample document request list. OCIE specifically notes that this list “is intended to help empower compliance professionals in the industry with questions and tools they may use to assess and assist with their organization’s preparedness for the LIBOR discontinuation, regardless of whether they are included in OCIE’s examinations.” The request list, which many firms might find useful as they begin to prepare for SEC exams, includes:

  • information regarding any individuals or groups (e.g., internal committees, working groups or transition teams) assigned responsibility to oversee or manage the effects of LIBOR transition, including information regarding the frequency of any meetings on this topic and whether minutes are kept;

  • the identity of any third parties used or proposed to be used to assess the impact of LIBOR transition on the firm or its clients, customers or investors;

  • documentation or descriptions of any analysis performed to identify contracts or obligations held and/or issued by registrant or its investors that may be affected by the LIBOR transition and any remediation plans;

  • documentation or descriptions of any performance composites or performance advertising that use a benchmark that could potentially be affected by the LIBOR transition and any remediation plans;

  • information regarding any investors whose fee structure (e.g., performance-based fees) or performance reporting (e.g., use of LIBOR-linked benchmark) could potentially be affected by the LIBOR transition;

  • any written assessments, strategic plans (including remediation plans, as applicable), roadmaps or timelines prepared by or for the firm regarding preparation for the LIBOR transition, including the consideration of alternative reference rates;

  • information regarding any third-party vendors the firm uses that may be impacted by LIBOR transition, including the services provided (e.g., back office) and how the vendor may be impacted;

  • information regarding any LIBOR-linked contracts or obligations that extend past the current expected discontinuation date that are held and/or issued by the firm or its investors, including the implications and impact of any incorporated fallback language;

  • any guidance provided by the firm to employees or supervised persons concerning recommendations to investors to purchase, sell, or enter into LIBOR-linked instruments or contracts that extend past the current expected discontinuation date, reviews of portfolios containing such instruments, or the underwriting of new instruments referencing LIBOR, if applicable; and

  • any implemented or planned changes to compliance procedures, controls or surveillance systems designed to monitor for LIBOR-linked instruments or contracts recommended or sold to clients.


Given OCIE’s clear emphasis on LIBOR transition preparedness, impacted firms should review OCIE’s sample examination document request list and the firm’s LIBOR transition plans generally. The full Risk Alert is available here.

Carolyn Jackson, Carl Kennedy, Richard Marshall, Christopher Shannon, Allison Yacker and Lance Zinman contribued this article. 

1 Office of Compliance Inspections and Examinations, Risk Alert: Examination Initiative: LIBOR Transition Preparedness (June 18, 2020).

2  OCIE, 2020 Examination Priorities.

©2023 Katten Muchin Rosenman LLPNational Law Review, Volume X, Number 188

About this Author

Wendy E. Cohen, Financial Services Lawyer, Katten Muchin Law firm

Wendy E. Cohen represents investment managers and other sponsors of domestic and offshore securities and commodities hedge funds, funds of funds and other public and private pooled investment vehicles, as well as their service providers, including their managers, brokers, financial intermediaries and other financial institutions, and investment professionals. She provides advice on all corporate and related matters facing investment funds, including structure and organization, ongoing operations, restructuring and dissolution.

Having practiced for...

Guy Dempsey Jr., Bank Regulations Legal Specialist, Katten Muchin

Guy C. Dempsey Jr. concentrates his practice on derivatives and structured products and on bank regulation. He advises clients on derivatives transactions of all types across all asset classes, as well as on the corporate governance, regulatory, collateral, compliance, insolvency and litigation issues associated with such products.

Much of Guy’s work involves helping bank and non-bank clients analyze the details and impact of the Dodd-Frank Act. He maintains deep knowledge of the banking laws and regulations relating to capital markets activities....

Gary DeWaal, Securities Attorney, Katten Law Firm, New York
Special Counsel

Gary DeWaal focuses his practice on financial services regulatory matters. He counsels clients on the application of evolving regulatory requirements to existing businesses and structuring more effective compliance programs, as well as assists in defending and resolving regulatory disciplinary actions and enforcement matters. Gary also advises buy-side and sell-side clients, as well as trading facilities and clearing houses, on the developing laws and regulations related to cryptocurrencies and digital tokens.

Previously, Gary was a senior...

David Y. Dickstein, Financial Services Lawyer, Katten muchin law firm

David Dickstein represents broker-dealers, investment advisers, investment companies and hedge funds in connection with a variety of regulatory, compliance and operational matters. David regularly counsels investment advisers on registration and regulatory matters, such as the need for registration, conflict of interest disclosures, soft dollars and best execution, firm advertising and marketing, federal and state pay-to-play matters, trade allocations and personal trading. He also advises broker-dealers on registration and ongoing compliance matters, mutual fund supermarkets...

Mark Goldstein, Katten Law Firm, New York, Financial Law Attorney
Special Counsel

Mark Goldstein focuses his practice on advising investment advisers, mutual funds and private investment funds. Mark has more than 25 years of experience advising clients on compliance and regulatory requirements, corporate matters, and the federal securities laws. He has extensive experience advising on the formation, distribution, structuring and on-going operational aspects of a wide array of investment products, including mutual funds, private investment funds, offshore funds, funds offered to separate accounts of insurance companies as funding vehicles for variable...