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

    OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities

    The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.

    May 17, 2022 WebPage Regulatory News
    News

    EBA Proposes Standards to Support Secondary NPL Markets

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.

    May 17, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).

    May 13, 2022 WebPage Regulatory News
    News

    EBA Issues Standards for Crowdfunding Service Providers Under ECSPR

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.

    May 13, 2022 WebPage Regulatory News
    News

    EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR

    The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    May 13, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.

    May 12, 2022 WebPage Regulatory News
    News

    MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy

    The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.

    May 12, 2022 WebPage Regulatory News
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    News

    EC Mandates ESAs to Propose Amendments to SFDR Technical Standards

    The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.

    May 11, 2022 WebPage Regulatory News
    News

    EBA Examines Supervisory Practices, Issues Deposits Reporting Template

    The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),

    May 11, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8196