ISDA launched a consultation on the final parameters for the adjustments that will apply to alternative risk-free rates if derivatives fallbacks are triggered. The deadline for responses to the consultation is October 23, 2019. This latest publication follows two earlier consultations, which set out options for the adjustments that will apply to the relevant risk-free rates if fallbacks are triggered for derivatives referencing nine interbank offered rates (IBORs). ISDA has also published a report by The Brattle Group that summarizes the final results of the second of those consultations, which focused on US dollar LIBOR, CDOR from Canada, and HIBOR from Hong Kong.
This consultation is intended to finalize the methodologies for the adjustments that will be made to derivatives fallbacks in the event certain interbank offered rates (IBORs) are permanently discontinued. These adjustments are necessary because of the differences between the IBORs and the risk-free rates. The adjustments reflect that the IBORs are currently available in multiple tenors, but the risk-free rates identified as fallbacks are overnight rates. The IBORs also incorporate a bank credit risk premium and a variety of other factors, while risk-free rates do not. The Brattle Group report confirms preliminary findings that the overwhelming majority of respondents preferred the "compounded setting in arrears rate" to address the difference in tenors and the "historical mean/median approach" to address the difference in risk premia.
Based on the results of this consultation, ISDA will make the relevant adjustments to the 2006 ISDA Definitions to incorporate fallbacks for new IBOR trades. A protocol will also be published to enable market participants to include fallbacks within legacy IBOR contracts if they choose to. Both the amended Definitions and the protocol are expected to be finalized by the end of this year, with implementation in 2020.
Comment Due Date: October 23, 2019
Keywords: International, Banking, Securities, IBORs, LIBOR, HIBOR, Benchmark Fallbacks, Interest Rate Benchmarks, Risk-Free Rates, ISDA Protocol, ISDA Definitions, ISDA
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.