OCIE Issues Risk Alert to Provide Additional Information About LIBOR Transition Preparedness Examinations

June 25, 2020

In January 2020, the SEC’s Office of Compliance Inspections and Examinations (OCIE) identified registrant preparedness for the transition away from LIBOR as an examination program priority for fiscal year 2020.1 On June 18, 2020, OCIE issued a Risk Alert (Alert) to provide registrants with additional information about the scope and content of these examinations.

LIBOR Transition

LIBOR, formerly the London Interbank Offered Rate, is currently expected to be discontinued as a benchmark rate for various commercial and financial contracts after 2021. This development could have a significant impact on the financial markets and may present a material risk for certain market participants, including SEC-registered investment advisers, investment companies and broker-dealers. The SEC staff is monitoring the extent to which market participants are identifying and addressing these risks.2


OCIE will conduct examinations of registrants to assess their preparation efforts, focusing specifically on a registrant’s evaluation of any potential impact the LIBOR transition will have on its business activities; operations; services; and customers, clients and/or investors. For example, OCIE will review any plans and steps implemented by the registrant to prepare for the LIBOR discontinuation and adoption of an alternative reference rate, including as applicable:

  • exposure to LIBOR-linked contracts that extend past the current expected discontinuation date, including incorporation of any fallback language;
  • operational readiness, including any enhancements or modifications to systems, controls, processes, and risk or valuation models;
  • disclosures, representations, and/or reporting to investors; and
  • identifying and addressing any potential conflicts of interest.

OCIE also provided a sample exam request list in the Alert, attached hereto as Appendix A, providing examples of requests for information that OCIE may use in conducting examinations of registered entities regarding their LIBOR discontinuation preparations.

S&K Observations

In view of OCIE’s focus on the transition away from LIBOR, SEC-registered investment advisers, investment companies and broker-dealers should develop formal plans and take concrete steps to update any LIBOR-linked contracts, modify necessary systems to conform with a new benchmark, disclose efforts to discontinue LIBOR use to investors, and identify and address any other potential conflicts of interest or issues that may arise from the discontinuation of LIBOR.


1 OCIE’s 2020 Exam Priorities can be found here: https://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2020.pdf.

2 The SEC Staff Statement on LIBOR Transition can be found here: https://www.sec.gov/news/public-statement/libor-transition.