Byline: Dihan Rosenburg, Director, Product Marketing at ASG Technologies
With the coming December 2021 retirement of LIBOR, Chief Data Officers in financial institutions are preparing to face their Y2K moment. An estimated $350 trillion of financial instruments are linked to this globally accepted benchmark rate for short-term loans, including adjustable rate mortgages, credit cards, student loans, bonds, securities and more.
The data management challenge is colossal. Over 100 million transactions reference LIBOR and must be replaced with alternative risk-free rates (“RFRs”), such as SOFR for the U.S. dollar and SONIA in the UK. Making the switch won’t be a simple search-and-replace exercise. Here’s why:
- RFRs are overnight rates, whereas LIBOR is published for multiple terms (e.g., one-week, three-month, etc.).
- Credit risks are embedded in LIBOR, while RFRs are “risk-free,” making a simple conversion impossible.
- RFRs have different behavioral characteristics than LIBOR, resulting in different historical spreads, so fallback rates must be applied.
To make the transformation, contracts referencing LIBOR will all need to be rewritten. Organizations must locate all references to LIBOR in contracts they hold to update with fallback provisions reflecting the new RFR terms, and communicate those new terms to clients.
While some banks have made a start on contract remediation, the data impact is even broader. Firms will need, for example, to create new models for pricing using the new benchmarks, creating new credit risk spreads and evaluating how that will affect margins and profitability—and far fewer firms have yet reached that point. Firms will also need to consider the impact of these new benchmarks on their FRTB and BCBS 239 programs.
To Get it Right, Impact Analysis is Vital
The transition of this complex data journey requires robust and comprehensive inventory analysis and data lineage capabilities. This upfront impact analysis is necessary to find the rates and analyze the changes before replacing them.
While firms may try to manage the necessary analysis manually with spreadsheets and subject matter expert (SME) interviews, this approach is particularly impractical for LIBOR migration programs. LIBOR has been around for over 40 years. The rates are primarily sourced and calculated inside of legacy systems—many of these SME’s have long since retired.
Even locating all the references to LIBOR rates will be difficult. The data is spread across unrelated systems and technologies, data will be both unstructured and structured, contracts may be unlinked to amendments, or a host of other data disparities may present themselves. Tracing LIBOR data is also complex, due to inconsistencies in how data is organized at the logical and physical level and transformed across thousands of applications.
Fortunately, Metadata Management Applications Can Automate these Tasks
Automated metadata harvesting and management applications are ideal for the unique data management challenges LIBOR migration presents. Here’s how:
- Automated inventory will accelerate the discovery of where LIBOR rates are referenced, whether in applications, mainframes, ERP systems or contracts.
- Automated data lineage graphically displays the flow of LIBOR data from its origination in legacy platforms to all final points of consumption—identifying transformation points and systems where derived values are calculated along the way. Intelligent lineage delivers both vertical and horizontal views, offering a tangible connection between the business and technical metadata. It provides a visual, easily digestible artifact that informs the analyses of technology, business and risk leaders.
- Business glossaries document business processes and terminology and connect technical and business assets. An artificial intelligence (AI)-based recommendation engine (“virtual data steward”) accelerates the speed and accuracy of matching business and technical data, as well as helping to find and track new rates going forward.
- Impact analysis begins with an understanding of how LIBOR rates are being calculated today. Analysts will find these calculations embedded inside of the SQL code from within the data lineage. The Snapshot feature displays both the current rate and what it will look like post-conversion to test and validate the new piping. By monitoring the lineage as it begins to shrink, users will also be able to track their progress towards meeting the deadline.
- Data quality information can augment the data lineage analyses to ensure key areas get the attention they require. Other data governance features—including data stewardship, issue management and dashboards—will keep disparate teams informed and coordinated across various concurrent activity streams.
From LIBOR Transition to Digital Transformation
Typically, financial institutions have treated similar data initiatives like MiFID II, Dodd Frank and Margin Rules as one-off projects. Disruptions in the global business and regulatory environment are occurring with increasing frequency mandating a more holistic approach. For instance, LIBOR is only one of the reference rates being retired. Other interbank rates (“IBORs”) around the globe are also on the chopping block.
Instead of viewing the LIBOR transition as just another costly, resource-consuming exercise, organizations should see this change a catalyst to uplevel and automate their data management processes to better understand and trust their data. Here are some benefits that one large financial institution told ASG they received from implementing an automated data intelligence system in just four months:
- Discovered LIBOR rates across 150 Applications and 20,000 Cobol programs.
- Solved a nine-month attestation request from their largest client that was being passed from department to department in search of a root cause.
- Shrunk their footprint of redundant applications, including consolidating ten UDTs to one!
With these successes, this data governance organization was able to easily justify additional investment for other use cases.
By looking at this transition as an opportunity to transform enterprise data intelligence and put in place the processes needed to clean, understand and trust data, financial organizations can future proof their data and adeptly address emerging changes. And with the greater data usage that trusted data enables, they can adroitly exploit new opportunities to enhance operations, deliver greater value to customers and gain competitive advantages.
3 KEY DIGITAL MARKETING TRENDS FOR 2021
Digital marketing is an industry where the trends are changing on a daily basis, meaning those in the sector really need to stay on top of what’s new and what’s going on.
More and more companies are investing in digital marketing; a service that becomes more and more popular every year. However, this year, especially, brands and businesses have needed digital marketing more than ever, with many shops and businesses being forced to close in person, and being forced to offer their services and products online.
Here are three of the fastest rising digital marketing trends that we expect to go in 2021:
- Specialised Marketing Agencies
Due to the current situation, many businesses will have sadly made members of their team redundant. During the 2008 recession, sadly a lot of those that had job cuts were in the marketing department and these were one of the first teams to be cut, as businesses decided that marketing just wasn’t important.
If that is anything to compare this situation to, then there will be less in-house markers, and therefore more businesses will want to be using their budgets to outsource to specialists instead.
Rather than going to big digital marketing agencies, they will perhaps want more agencies that are specialist in their industry, such as beauty, sport or food so that they can be guaranteed the knowledge and expertise in their niche.
Foundation Agency is an example of an agency launched in the middle of the pandemic. They formed after Google data in May 2020 showed a huge shift in online user behaviour , with trends showing a surge in beauty and skincare, and 70% of consumers now saying they buy beauty products online more than before.
- Less PR Campaigns
The past few months have proven that an event or a situation can take up every newspaper front page, every online article and every single social media mention, and there can be some days (or months in this case) where every day is quite a news heavy day. In this case, journalists won’t be looking for as many campaigns from PR professionals as they’ll already have a list of stories they’d want to cover.
Spending too much time and money on a campaign might backfire, and PR professionals and marketing professionals may use their time to find more reactive opportunities.
Kyle Sowden, Digital PR Executive at Liberty Marketing, says:
“I’ve been keeping a close eye on the amount of surveys that have been getting picked up in the media over the last two or three months and noticed that they’re hugely decreasing. Surveys can cost a few grand, depending on the niche of the respondents you want, what results you want and how many questions you want too. If you don’t get the results that you hoped for, then this could be a huge loss in terms of money and time.
PR professionals are better off spending their money on services like Response Source and HARO, as well as emailing journalists that they know will be writing about topics that they, or their clients, are able to supply comment to rather than producing one big content campaign. Maybe not forever, but certainly for the time being while the world is a bit weird.”
- More Social Media Advertising
Most of us have more time to spend, meaning more time to sit around on our phones or laptops. There have been a lot of furloughs and redundancies this year, as well as more slackers that are working from home, spending time scrolling through social media platforms.
Social media is one of the best places to advertise and market your brand or product, especially as we know many people have switched to online shopping now rather than going into the local town centres.
Ryan Walton, Founder of Aura Ads, says:
“With more time spare to scroll through social media and online shop, brands are well aware that one of the best ways that they can spend their marketing budgets is on social media marketing, specifically video as they know that’s what gets the highest engagement rates.”
Of course, these trends aren’t certain, but they’ve definitely been on the rise towards the end of the year, and we expect them to keep peaking. It’s important to check sites such as Search Engine Journal for your everyday marketing news, to see what sort of changes are going on in the digital marketing industry.
A GUIDE TO LLC TAXES FOR SMALL BUSINESSES
By Tricia Joyce
Starting a small business can be an exciting, if sometimes stressful, journey. While finally being able to be your own boss is definitely a perk, running your own business isn’t always easy.
One of the greatest hurdles that entrepreneurs are often underequipped to deal with is taxation. How much should you be paying per year, and what are the forms and processes? In our previous post ‘Corporation Tax – A Guide for Small Businesses’, we discussed the ins and outs of corporation taxes and other basic information. Today, we’re going to look at the specifics of paying tax as a Limited Liability Company (LLC).
Benefits of an LLC
Why choose to register as an LLC? Well, most entrepreneurs might think that registering as a sole proprietorship might be enough, but there are certain advantages to LLCs. Generally, LLCs offer more flexibility and liability protections, without the complicated procedures and extra costs of other business models.
Another main draw of forming an LLC is that they’re taxed differently from S corporations. The two models are fairly similar in that they protect the owners from double taxation. However, LLCs offer more flexibility, and have less complicated procedures. S corporations are also required to file business tax returns, which are not required for single-owner LLCs.
How Are LLCs Taxed?
As a “pass-through entity,” LLCs have a tax system that sets them apart from corporations. Like sole proprietorships, the profits and losses of an LLC are coursed through business owners or members. These business owners report this information on their personal tax returns, rather than filing for a separate corporation and personal tax.
According to the Internal Revenue Service, single-member LLCs are considered “disregarded entities.” This means the LLC’s activities must be filed as part of the owner’s federal tax return.
Single-member LLCs must use the Social Security Number (SSN) or Employer Identification Number (EIN) of the owner for reporting income tax. Generally, these activities will be reported through Form 1040 or 1040-SR.
If the LLC is owned by a married couple in a community property state, and the couple continue to treat the entity as a disregarded entity for federal tax purposes, or as a partnership for federal tax purposes, then the LLC remains as reported. However, in non-community property states, the LLC must file as a partnership. It is important that you make sure to research what kind of rules for joint ownership of an LLC exist in your state.
If the LLC is owned by multiple members, such as a married couple as given in the example above, income tax is generally paid as a partnership. This means that individual partners will pay tax based on their lawful share of ownership in the LLC. This is called a distributive share, and is usually found in proportion to a member’s ownership percentage of the business.
The Balance has a small guide on paying taxes as an LLC. In brief, the partnership will file an information return on Form 1065. Each partner will then receive a Schedule K-1 showing the share of profits or losses in the LLC.
The Schedule K-1 information must then be transferred to Schedule E – Supplemental income. Each type of income, as broken down on your Schedule K-1, will be inputted in specific sections on the Schedule E. You can then include the income as reported in your Schedule E in the relevant sections of your Form 1040 or 1040-SR.
Is an LLC Right for You?
LLCs are favored for their adaptability and relatively simple procedures. However, if your multi-member LLC needs to retain a certain amount of profits, you may find it more beneficial to register as a corporation. In general, however, LLCs are great options for small business owners. Make sure to do extensive research on the tax laws in your state to ensure you’re choosing the right model for your business plan.
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