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Asset finance software and services provider Alfa has published a new whitepaper that provides in-depth guidance on LIBOR reform.

LIBOR rates are used by auto and equipment finance businesses globally as a benchmark to determine customer interest rates.

However, LIBOR, EURIBOR and other such rates carry inherent shortcomings that have led to their planned replacement by alternative risk-free rates such as SONIA and SOFR.

In the whitepaper, called LIBOR Reform: The Impact for Auto and Equipment Finance Providers, Alfa analyses the changes, why they are happening and what impact they will have on asset finance providers.
Issues covered include how asset finance company systems must be enhanced to accommodate the changes.

Joe MacFarlane, the paper’s author, said: “The upcoming reform of LIBOR and other similar rates will impact asset finance operations on a global scale, and providers who wish to continue to link their business to money market rates need to consider how they will adopt the new risk-free rates.”

He added that as the advantages of these rates become clear to customers, those who develop a clear path to offering such linked business will gain an important competitive advantage.

“Alfa Systems, Alfa’s flagship software platform, was already capable of addressing many of the requirements before the LIBOR transition became a reality,” MacFarlane said. “We have been working with the Alfa User Group to implement a solution that is consistent with the usage of risk-free rates across other lines of business, and allows a smooth transition for existing business at scale.”

Despite the impact of the global Coronavirus pandemic, the timeline for LIBOR’s discontinuation remains unchanged, he said.

Alfa Systems supports both retail and corporate business for auto, equipment, wholesale and dealer finance on a multijurisdictional basis, including leases/loans, originations and servicing.

Alfa, which has more than 30 clients operating in 26 countries and has offices throughout Europe, Australasia and the Americas, will publish updates to its paper as developments occur.

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