Alfa, a provider of software and services to the asset finance industry, has produced a new whitepaper entitled LIBOR Reform: The Impact for Auto and Equipment Finance Providers. The paper can be downloaded from alfasystems.com/libor.

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 which have led to their forthcoming replacement by alternative risk-free rates such as SONIA and SOFR. In the whitepaper, Alfa discusses why this is happening, what it means for finance providers who need to make the transition, and how their 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. As the advantages of these rates become clear to customers, those who show 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. 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.”

The impact of the coronavirus pandemic on the transition process has been recognized, but at time of publication the timeline for LIBOR’s discontinuation is unchanged. Alfa will publish updates to its paper as developments occur.