Featured Product

    HKMA Updates Transition Milestone for Benchmark Rate Reforms

    March 25, 2021

    HKMA issued guidelines updating the transition milestone for benchmark rate reforms for authorized institutions in Hong Kong. A number of international banks have indicated to HKMA that they have encountered difficulties in offering products referencing alternate reference rates because client awareness in the region has yet to be raised and some term alternative reference rates remain unavailable. Thus, the banks are concerned that restricting the issuance of LIBOR-linked contracts prematurely may result in a fragmentation of markets. After considering the industry feedback, HKMA and the Treasury Markets Association, or TMA, agreed that it instead of the end-June timeline, the authorized institutions should cease to issue new LIBOR-linked contracts by the end of 2021.

    In consultation with the Treasury Markets Association, in July 2020, HKMA had developed the following transition milestones for authorized institutions:

    • 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.
    • Institutions should cease to issue new LIBOR-linked products that will mature after 2021 by June 30, 2021.

    The latest HKMA survey indicates that the vast majority of authorized institutions have substantially achieved the first two transition milestones. Most of them are now in a position to offer financial products referencing Secured Overnight Financing Rate (SOFR) or Sterling Overnight Index Average (SONIA) and nearly all of them have signed up to the ISDA IBOR Fallbacks Protocol. Regarding the third transition milestone, the UK FCA confirmed earlier this month that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021 in the case of all GBP, EUR, CHF, and JPY settings as well as in the case of the one-week and two-month USD settings; these settings will also cease to be provided by any administrator or no longer representative immediately after June 30, 2023 in the case of the remaining USD settings. 

    Following the FCA announcement, other authorities including the U.S. FED have publicly indicated that financial institutions should cease entering into new LIBOR contracts as soon as practicable and in any event by December 31, 2021. HKMA and the Treasury Markets Association have also agreed that it is no longer appropriate to stick to the earlier timeline of ceasing to issue new LIBOR-linked products by the end of June. Authorized institutions should continue to press ahead with their transition preparations and should cease to issue new LIBOR-linked contracts by the end of this year. Meanwhile, HKMA will continue to engage the industry proactively to ensure a smooth transition away from LIBOR.

     

    Keywords: Asia Pacific, Hong Kong, Banking, Alternative Reference Rates, Interest Rate Risk, Benchmark Reforms, Basel, LIBOR, HKMA

    Featured Experts
    Related Articles
    News

    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.

    July 26, 2021 WebPage Regulatory News
    News

    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.

    July 26, 2021 WebPage Regulatory News
    News

    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.

    July 26, 2021 WebPage Regulatory News
    News

    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.

    July 26, 2021 WebPage Regulatory News
    News

    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.

    July 23, 2021 WebPage Regulatory News
    News

    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.

    July 23, 2021 WebPage Regulatory News
    News

    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.

    July 22, 2021 WebPage Regulatory News
    News

    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.

    July 22, 2021 WebPage Regulatory News
    News

    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.

    July 22, 2021 WebPage Regulatory News
    News

    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.

    July 21, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7293