BOJ and JFSA published a response to the IBA announcement on the end date of LIBOR panel publication and the FCA announcement on the intention to consult on the publication of synthetic JPY LIBOR. In their response, BOJ and JFSA have specified the actions needed toward the end of 2021 when panel-based LIBOR will cease, in addition to setting out their expectations with respect to the synthetic JPY LIBOR.
In principle, either active conversion to alternative reference rates or insertion of fallback language is necessary for legacy contracts referencing LIBOR in preparation for the permanent cessation of LIBOR. On March 05, 2021, IBA notified that panel-based LIBOR will cease at the end of 2021, except for certain USD LIBOR settings. According to the response statement, it is important that each financial institution should proceed to explain to its customers and amend contracts to progress either active conversion or insertion of fallback language as soon as practicable, in conformity with the “Roadmap to prepare for the discontinuation of LIBOR” released by the Cross-Industry Committee on JPY Interest Rate Benchmarks in August 2020 as well as the transition plan of each financial institution.
While FCA has announced that it will consult on using the proposed new powers to require publication of synthetic JPY LIBOR for one additional year after the end of 2021, the Financial Services Bill introduced to the UK Parliament in October 2020 has not yet been enacted. Even if the Bill is enacted, in the UK, as expected, FCA could only compel IBA to publish a synthetic LIBOR for a limited period of time and its use will be restricted to legacy contracts that cannot feasibly be transitioned away from LIBOR. Therefore, it is of utmost importance that preparations toward the transition away from LIBOR continue without reliance on synthetic LIBOR. Continuous efforts are necessary to cease the issuance of new loans and bonds referencing JPY LIBOR by the end of June 2021 and to significantly reduce the amount of loans and bonds referencing JPY LIBOR by the end of September 2021. While it is premature to consider the use of synthetic JPY LIBOR at the moment, the following are the expectations of BOJ and JFSA with respect to the potential publication of synthetic JPY LIBOR:
- Use of synthetic JPY LIBOR in new contracts and transactions. It is of utmost importance to steadily reduce the amount of contracts referencing JPY LIBOR to advance orderly transition away from JPY LIBOR, even if synthetic JPY LIBOR can be a “safety net.” Any synthetic JPY LIBOR should not be used in new contracts and transactions.
- Use of synthetic JPY LIBOR in legacy contracts and transactions. In Japan, synthetic JPY LIBOR should be considered as a potential “safety net” and used only for legacy contracts that cannot feasibly be transitioned away from JPY LIBOR. The Cross-Industry Committee, in close cooperation with a wide range of market participants, intends to discuss the risks and uncertainties with a view to considering the nature of potential tough legacy that cannot be transitioned away from JPY LIBOR before the end of 2021.
Keywords: Asia Pacific, Japan, Banking, Securities, LIBOR, Interest Rate Benchmarks, Benchmark Reforms, Basel, LIBOR Transition, Synthetic LIBOR, IBA, FCA, BOJ, JFSA
Previous ArticlePRA and FCA Consult on Bilateral Margin Requirements for Derivatives
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.