JFSA Issues Updates on Liquidity Risk FAQs and LIBOR Transition
The Financial Services Agency of Japan (JFSA) updated the frequently asked questions (FAQ) in relation to the liquidity ratio requirements based on introduction of fund-supplying operations to support financing for climate change responses. The updates mainly allow for collateral pledged by financial institutions to the Bank of Japan (BOJ) to be treated as an exception to the net stable funding ratio (NSFR) requirements, when using the fund-supplying operations to support the private sector's climate change-initiatives/responses (as applied to other non-standard funds-supplying operations). JFSA also requested that the relevant financial institutions facilitate financing for small- and medium-size enterprises during the calendar- or fiscal-year-end season and further beyond; this is because businesses are still facing difficult cash flow conditions with tight borrowing constraints amid COVID-19 pandemic. Additionally, the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks published the final report on results of the public consultation on the treatment of tough legacy contracts in Japan.
The consultation on the treatment of tough legacy contracts took place from September 28 to October 19, 2021. Most of the responses to the items subject to public comments in the consultation paper were in support of the Committee's views and were mainly complementary. In response to the feedback received, the Committee is revisiting its views regarding the concept of contracts that could consider using synthetic yen LIBOR as tough legacy contracts and the points to note when using synthetic yen LIBOR between contracting parties. In consideration of the final report, BOJ and JFSA have sent a joint letter to financial institutions on transition away from JPY LIBOR. The letter highlights that it is necessary for each financial institution to take further actions to transition in the remaining period, as not all existing contracts requiring LIBOR transition have been completed and there are still risks and uncertainties that transition will not be completed by the end of this year. BOJ and JFSA will continue to monitor the progress of existing contracts referencing JPY LIBOR for which transition has not yet been completed, including conducting a third survey on the use of LIBOR as of the end of December 2021, and require financial institutions to take necessary actions in light of the situation. From January 2022, BOJ and JFSA will monitor financial institutions on their use of synthetic yen LIBOR and their engagement with customers when using synthetic yen LIBOR, as necessary. Based on the monitoring results, JFSA will mull on the appropriate supervisory measures.
Keywords: Asia Pacific, Japan, Banking, Securities, FAQ, Basel, Climate Change Risk, ESG, NSFR, SMEs, Credit Risk, LIBOR Transition, Interest Rate Benchmarks, Benchmark Reforms, Synthetic LIBOR, Legacy Contracts, Liquidity Risk, JFSA, BOJ
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Hasan Cerhozi
Hasan leads Moody’s Analytics ESG methodology development. He is expert on carbon transition, nature related risks and is a guest lecturer at ESSEC Business school on sustainable finance.
Previous Article
APRA Finalizes Capital Adequacy Standards for BanksRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
