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    HKMA Issues Note on LIBOR Transition and Proposal on Resolution Regime

    July 09, 2021

    The Hong Kong Monetary Authority (HKMA) is consulting the banking industry on the draft Section 196 of the Financial Institutions (Resolution) Ordinance (Cap. 628) (FIRO) Code of Practice Chapter ST-1 on contractual recognition of suspension of termination rights. Chapter ST-1 aims to provide guidance on how the Resolution Authority intends to exercise certain discretionary powers under, and on the operation of certain provisions in, the Financial Institutions (Resolution) (Contractual Recognition of Suspension of Termination Rights – Banking Sector) Rules (also known as the Stay Rules). The consultation period ends on September 09, 2021. Additionally, HKMA published a circular announcing that it has updated the explanatory note on LIBOR transition for authorized institutions, which HKMA expects the authorized institutions to share with the relevant corporate customers by July 31, 2021

    The note is intended to give a further push to promote the corporate sector’s awareness of the LIBOR transition. HKMA and the Treasury Market Association (TMA) jointly developed and published is leaflet in July 2020. The leaflet a self-explanatory note about LIBOR transition in the form of questions and answers (Q&A) to impress upon corporates the need to make early preparations. Institutions distributed this note to the corporate customers in the third quarter of 2020. Overseas authorities have now confirmed that most LIBOR settings will be discontinued starting from January 01, 2022. To ensure a smooth transition, bank regulators worldwide, including HKMA, have required banks to cease entering into new LIBOR contracts after 2021. Given the recent developments, HKMA and the TMA have updated the Q&A and developed a leaflet to enhance awareness of corporate sector on the transition and its implications for them. HKMA is now requesting institutions to distribute the enclosed leaflet to all their corporate customers that have outstanding LIBOR-linked contracts with them by July 31, 2021. The leaflet states that bank customers will have to reference alternative interest rates in any new contracts with banks from January 01, 2022 onward.

     

    Comment Due Date: September 09, 2021

    Keywords: Asia Pacific, Hong Kong, Banking, LIBOR, FIRO, Benchmark Reforms, Corporates, Resolution Framework, Resolution Planning, Chapter ST-1, Contractual Recognition, Stay Rules, HKMA

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