Featured Product

    HKMA Outlines Transition Milestones for Interest Rate Benchmark Reform

    July 10, 2020

    HKMA published the latest results of the survey on reform of interest rate benchmarks and announced the key milestones that authorized institutions should endeavor to achieve in the transition to alternative reference rates. Annex 1 to the HKMA circular presents the survey results while Annex 2 provides details on the recent developments related to the benchmark reform. In accordance with the announced transition milestones, authorized institutions should cease to issue new LIBOR-linked products that will mature after 2021 by June 30, 2021.

    The latest results of the survey showed that the amount of LIBOR-linked exposures maturing beyond 2021 and having no adequate fallback provisions had grown in the six months ending March 31, 2020. This suggests that the risks associated with the benchmark reform continue to build up in the banking system. Nonetheless, authorized institutions have made further progress in their preparation for the transition. By the end of March 2020, the proportion of authorized institutions that had developed a bank-wide transition plan increased by 23% to 61%. All except a few smaller institutions have already come up with a transition plan, based on the most recent information collected by HKMA.

    Notwithstanding the outbreak of COVID-19, financial authorities worldwide remain committed to the original transition timeline. FSB issued a statement on July 01, 2020, reaffirming its view that firms across all jurisdictions should continue to remove remaining dependencies on LIBOR by the end of 2021. The Working Group on Sterling Risk-Free Reference Rates in the UK and the Alternative Reference Rates Committee in the US have issued further statements to supplement their earlier work plans with detailed transition milestones. These include clear timelines for financial institutions to offer non-LIBOR linked products and to cease issuing products referencing LIBOR. With regard to the developments in other financial markets, HKMA has, in consultation with the Treasury Markets Association or TMA, developed the following transition milestones that authorized institutions are expected to achieve:

    • Authorized institutions should be in a position to offer products referencing the alternative reference rates to LIBOR from January 01, 2021.
    • Adequate fallback provisions should be included in all newly issued LIBOR-linked contracts that will mature after 2021 from January 01, 2021.
    • Authorized institutions should cease to issue new LIBOR-linked products that will mature after 2021 by June 30, 2021.

    HKMA expects authorized institutions to endeavor to achieve the above transition milestones and put in place a detailed work plan (by products and by business lines) for this purpose. HKMA advises that authorized institutions having difficulties to meet this timeline should discuss with HKMA as soon as they are aware of their inability to comply with this industry standard. To assist authorized institutions to prepare for the transition, the Asia Securities Industry and Financial Markets Association (ASIFMA), at the request of HKMA, has agreed to develop a transition guide. HKMA is also working with the the Treasury Markets Association to develop a self-explanatory note about the benchmark reform, which authorized institutions can distribute to their corporate customers to impress on them the need to make early preparations. Separately, HKMA, along with the Treasury Markets Association, is evaluating the need for suitable fallback provisions for HIBOR contracts, although as pointed out in previous communications there is no intention to discontinue the local benchmark. 

     

    Keywords: Asia Pacific, Hong Kong, Banking, Securities, Benchmark Reforms, IBOR, HIBOR, Fallback Provisions, LIBOR, Transition Measures, Derivatives, HKMA

    Related Articles
    News

    EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    EBA Updates Lists of Entities for Use in Capital Calculations under SA

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    MAS Amends Notice on Related Party Transactions of Banks

    MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.

    April 08, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Euro Short-Term Rate

    ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.

    April 07, 2021 WebPage Regulatory News
    News

    EBA Consults on Standards Related to FRTB-SA

    EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).

    April 07, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules Related to IRB Approach for Credit Risk

    PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.

    April 07, 2021 WebPage Regulatory News
    News

    BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK

    The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks

    FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks

    OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.

    April 06, 2021 WebPage Regulatory News
    News

    EU Amends CRR and Securitization Regulation in Response to Pandemic

    To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).

    April 06, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6826