Featured Product

    HKMA Announces Results of Study on Financial Benchmark Reforms

    September 24, 2019

    HKMA announced the publication of a report that studies the implications of financial benchmark reforms. This report by the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP) provides a brief overview of the three areas of financial benchmark reforms—discontinuation of London Interbank Offered Rate (LIBOR), implementation of the EU Benchmarks Regulation, and reform of the local benchmarks in EMEAP markets. EMEAP comprises the central banks and monetary authorities of eleven countries in Asia Pacific: Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, and Thailand.

    This report, which is based on a study conducted by the EMEAP Working Group on Financial Markets, assesses the extent to which EMEAP markets are affected, identifies the issues and challenges posed to EMEAP countries, and examines the readiness of EMEAP countries in dealing with such issues and challenges. The report provides a brief overview of the above-mentioned three areas of financial benchmark reforms, summarizes the results of the survey, and identifies risk scenarios while proposing policy recommendations for the consideration of EMEAP members.

    In terms of LIBOR discontinuation, the report concludes that a more detailed information on financial exposures is necessary to complete the overall risk assessment. LIBOR discontinuation may be more problematic for corporate bonds, syndicated loans, and other cash products rather than for derivatives. In the area of the EU Benchmarks Regulation, the potential impact is expected to be moderate, particularly with the extension of transition deadline to January 01, 2022. Additionally, the potential impact on the functioning of regional markets appears to be contained, according to the results of the study. The following are the key policy recommendations of the working group in each area:

    • LIBOR discontinuation. One policy recommendation is for the central banks or banking supervisors to require banks to perform risk assessment and impact analysis of their LIBOR exposures under different scenarios to develop their governance such as the identification of key senior managers and provide transition plans toward alternative reference rates (ARRs), in particular in terms of migrating legacy contracts. Encouraging the launch and trading of new ARR-based products such as bond issues, futures, and swaps, where appropriate, has also been recommended.
    • EU Benchmarks Regulation. The recommendation is to prepare early and perform gap analysis toward the compliance of IOSCO principles and toward achieving equivalence with the EU Benchmarks Regulation, especially for the systematically important benchmarks. Another recommendations are to start early dialog with ESMA on cooperation arrangements as the process could take time and to keep in mind the interaction between EU Regulation and other benchmark reforms and LIBOR discontinuation.
    • Local benchmark reforms. One of the policy recommendations is to encourage the launch and trading of new ARR-based products such as bond issues, futures, and swaps, where appropriate. When determining calculation methodologies of alternative risk-free reference rates (RFR) and term-RFRs, consider not only the correlation against existing benchmarks, but also the potential economic transfer, which may be crucial in encouraging adoption of ARRs. Finally, engage with the industry and market participants closely in determining the calculation methodology of alternative benchmarks and encourage market participants, especially banks, to be prepared for a scenario where they need to transition to alternative benchmarks; such a scenario could involve conducting regular review on the exposure to affected benchmarks, putting in place robust contractual fallbacks in the scenario that the local benchmarks were to cease, and formulating action plans to manage the associated risks or changes. 

    Keywords: Asia Pacific, Banking, Securities, Benchmark Reforms, LIBOR, Interest Rate Benchmarks, EMEAP, HKMA

    Related Articles

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News

    BaFin Consults on Resolvability Requirements for Resolution Planning

    The Federal Financial Supervisory Authority of Germany (BaFin) proposed to amend the “Capital Investment Conduct And Organization Ordinance” and issued a draft circular on the minimum resolvability requirements for resolution planning.

    June 10, 2022 WebPage Regulatory News

    EBA Consults on Certain Standards and Guidelines Under CRR and BRRD

    The European Banking Authority (EBA) proposed guidelines, for the resolution authorities, on the publication of the write-down and conversion and bail-in exchange mechanic, with the comment period ending on September 07, 2022.

    June 08, 2022 WebPage Regulatory News

    OJK Publishes Regulatory Updates for Financial Sector Entities

    The Financial Services Authority of Indonesia (OJK) is strengthening cooperation with the Australian Prudential Regulation Authority (APRA) and the Japanese Financial Services Agency (JFSA)

    June 03, 2022 WebPage Regulatory News

    EU Publishes Rules on DLT and Data Governance

    The European Parliament and the Council published Regulation 2022/868 on European data governance (Data Governance Act).

    June 03, 2022 WebPage Regulatory News

    EBA Publishes Phase 2 of Reporting Framework 3.2

    The European Banking Authority (EBA) published phase 2 of its reporting framework 3.2. The technical package supports the implementation of the updated reporting framework by providing standard specifications

    June 03, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8267