Global financial firms are aware of the forthcoming shift away from London Interbank Offered Rate (LIBOR) toward new major financial benchmarks, but action to prepare for the transition remains limited, according to a new report.

According to a group of global financial industry trade organizations — including the International Swaps and Derivatives Association Inc. (ISDA), the Association of Financial Markets in Europe, the International Capital Market Association and the Securities Industry and Financial Markets Association (SIFMA) — the planned move away from interbank offered rates (IBOR) to alternative risk-free rates (RFRs) by 2021 is facing a gap between the awareness of benchmark reform and concrete action being taken to enable the transition.

For example, the report says, the group’s survey of global financial firms, infrastructure providers, corporations and others, found that awareness of benchmark transition issues is “relatively high,” with 87% saying that they are concerned about their exposure to the IBORs. Yet, only 12% of firms surveyed have begun formally planning for the transition and just 11% have allocated budget for these plans.

The report also identifies several key issues for a successful transition, including the need for market participants to develop new cash products and liquidity in derivatives and futures that are based on RFRs. It also sets out a checklist of steps that firms can take to prepare for the transition to alternative RFRs.

“The transition from the IBORs to alternative RFRs will have an impact across financial markets – from derivatives to bonds to mortgages,” said Scott O’Malia, CEO of the ISDA, in a release. “It’s vital that firms commit resources and begin their transition planning initiatives. Our report sets out a number of steps that institutions can take to prepare. Given the scale of the task, this implementation checklist should be adopted now.”

Added Kenneth Bentsen, Jr., president and CEO of SIFMA: “We need to prepare the market to [make the] transition away from reliance on LIBOR, and to ensure that both the cash and derivatives markets remain liquid and resilient when there is a move to new reference rates.”

Bentsen added that it is “crucial to try to strive for consistency across geographical regions, product segments and market participants to both avoid fragmentation in global markets and permit the most effective risk management.”