RBNZ Supports OCR as Fallback Benchmark Interest Rate for New Zealand
RBNZ is supporting the selection of the Official Cash Rate (OCR) as the fallback benchmark interest rate in New Zealand. The New Zealand Financial Markets Association (NZFMA) has made changes to further improve reliability and robustness of the benchmark, in line with developments in the global best practices. As a part of these improvements, NZFMA, in conjunction with consultation from industry representatives, selected the OCR to act as the risk-free fallback benchmark interest rate for BKBM, which is benchmark interest rate of New Zealand. The new risk-free interest-rate benchmarks will be calculated independently to the BKBM fallback benchmark rate, with the NZFMA in the process of developing a term structure methodology.
In the first quarter of 2020, ISDA is expected to update its 2006 fallback provisions. Following this, it would be prudent for market participants to adopt them in contracts that reference the BKBM. ISDA will also publish a protocol to enable market participants to include fallback benchmark rates within legacy inter-bank offered rate trades, if they choose to. ISDA appointed Bloomberg Index Services to calculate and publish the term rate adjustment (using compounded setting in arrears) and credit spread adjustment (using a historical median) for the fallback benchmark rate, should it be needed. Furthermore, NZFMA advised that it intends to operate dual interest rate benchmarks, retaining BKBM and developing risk-free rates.
Internationally, it is widely recognized that the London Inter-bank Offered Rate, or LIBOR, will no longer be calculated and published beyond 2021. Market participants in New Zealand with contracts referencing LIBOR should continue to prepare for this by transitioning to the alternative benchmark rates and by adopting more robust fallback provisions in their contracts. While some banks have made good progress, market participants need to accelerate efforts to ensure they are prepared for LIBOR cessation by the end of 2021.
Related Link: Press Release
Keywords: Asia Pacific, New Zealand, Banking, LIBOR, IBOR, Fallback Provisions, NZFMA, Interest Rate Benchmark, OCR, BKBM, RBNZ
Previous Article
IASB Consults on Approach to Update the IFRS for SMEs StandardRelated Articles
PRA Finalizes Approach to Supervision of International Banks
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
FCA Issues PS21/9 on Implementation of Investment Firms Regime
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
EBA Proposes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
IOSCO Proposes Recommendations on ESG Ratings and Data Providers
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
EC to Defer Application of SFDR Standards Till July 2022
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
EIOPA Consults on Reporting and Disclosures Under Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) proposed to amend the supervisory statement on supervision of run-off undertakings that are subject to Solvency II regulation.
BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
EBA Seeks Views on Proportionality Assessment Methodology
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
US Agencies Propose Changes to Call Reports and Instructions
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
