PBC published information on the preparations for implementing the interest rate benchmark reforms in China. This information was published in the form of a white paper, which covers plans of China to participate in the international interest rate benchmark reforms and its progress in this area. The paper also discusses the roadmap and timetable for benchmark transitions in the domestic market.
The paper highlights that PBC has actively participated in international interest rate benchmark reform and guided the Self-Regulatory Mechanism for Market Rate Pricing in setting up a special working group as well as carrying out a series of research. By now, it has become clear that international interest rate benchmark transitions, including LIBOR, in domestic market will follow the general idea of mainly referring to international consensus and best practices and will actively promote the application of new benchmark interest rates. PBC has instructed the development of the roadmap and the timetable with respect to the benchmark transitions in domestic market, organized in-depth research, and instructed relevant banks to initiate preparation for benchmark transitions as soon as possible.
These preparations include participating in the design and application of new benchmark interest rates, promoting benchmark transitions of new contracts, and exploring the benchmark transition arrangements for the legacy contracts. After the benchmark transition plan for new contract have been determined and finalized, PBC will instruct the LIBOR Working Group to publish the recommended fallback languages, providing guidance to financial institutions to formulate their own customized transition plans accordingly. PBC will instruct the LIBOR Working Group, with reference to international experiences, to provide clarifications on elements of fallback arrangements including triggers, benchmark transition dates, alternative interest rate benchmarks, spread adjustment, interest accruing method and relevant market conventions. PBC will also urge National Association of Financial Market Institutional Investors (NAFMII) to revise relevant derivatives agreements and definitions as soon as possible.
The paper adds that China has cultivated a series of benchmark interest rates based on actual transactions since the establishment of domestic interbank market, which provides first-mover advantages. Depository-Institutions Repo Rate (DR), government bond yield, and Loan Prime Rate (LPR) have played a significant role as benchmark interest rates in corresponding financial market, providing relatively good reference in observing market operation and guiding financial product pricing. Overall, the benchmark interest rates of China based on actual transactions have been in operation for a long time and China possesses full-scale market transaction data with transparency and availability. PBC has conducted in-depth research and proposed ideas and plans to improve benchmark interest rates of China and the market-based interest rate system, with focus on Depository-Institutions Repo Rate. The next development priority of interbank benchmark interest rate system of China is to promote a wide application of various benchmark interest rates. Efforts will be made in innovating and broadening the application of Depository-Institutions Repo Rate in financial products, including floating-rate bonds and floating-rate interbank certificate of deposits, so as to make the Depository-Institutions Repo Rate a key reference indicator for monetary policy management and financial market pricing in China.
Keywords: Asia Pacific, China, Banking, Securities, Interest Rate Benchmarks, Benchmark Reforms, LIBOR, Depository Institutions Repo Rate, PBC
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).
EBA updated the list of other systemically important institutions (O-SIIs) in EU.
BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.
UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.
PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.
MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.
ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.