Banks and other financial firms are bracing for a host of risks that may accompany the move away from interbank offered rates (IBORs), such as the London IBOR, to alternative financial benchmarks, Moody’s Investors Service reports.

The rating agency says that financial firms are expecting financial, operational, legal, regulatory and technological risks when the IBORs are replaced in 2021.

It reports that a survey of 76 banks, insurers and asset managers found that three-quarters of banks and one-third of other financial institutions “expect material risk in the move from IBORs to transaction-based overnight alternative reference rates.”

Amid ongoing concerns about the IBORs in the wake of the benchmark manipulation scandal, regulators have decided to replace them with transaction-based alternatives.

Yet, Moody’s notes that there is still “much uncertainty” about the final benchmarks that will take their place after 2021.

“Dangers include legal risks that clients and counterparties may not adhere to industry protocols, and operational risks that processes and systems will not be ready and will disrupt business,” said Olivier Panis, vice president and senior credit officer at Moody’s.

Survey respondents saw the primary challenges to be “the term adjustment between IBORs and overnight rates, the lack of liquidity for alternative benchmarks and the changes in contractual language for loans, investments, liabilities and hedging instruments.”

Moody’s notes that two-thirds of banks and one-third of other firms have remedial transition plans in place.

“Most banks and large NBFIs are active in working groups with regulators and industry associations, ensuring sharing of information among market participants and consistent integration of standards into contracts,” it says.