Featured Product

    HKMA Issues Update on Benchmark Transition for Banks

    August 19, 2021

    The Hong Kong Monetary Authority (HKMA) issued a circular updating authorized institutions on the recent developments related to the reform of interest rate benchmarks. Riding on the latest recommendation of US Alternative Reference Rates Committee (ARRC) on July 29, authorized institutions are expected to step up their efforts to encourage customers to transition to Secured Overnight Financing Rate Data (SOFR). To ensure a smooth transition away from LIBOR, HKMA will step up its surveillance of authorized institution's preparation from now on until the end of 2021. In this connection, the frequency of the survey on reform of interest rate benchmarks will be increased from quarterly to monthly during the fourth quarter, starting from the position of end-September 2021. To reduce the reporting burden on authorized institutions, HKMA will simplify the reporting template, which will be distributed to authorized institutions shortly.

    Consistent with the guidance provided by banking regulators worldwide, HKMA is requiring authorized institutions to cease to enter into new LIBOR-linked contracts after 2021. As certain USD LIBOR settings will continue to be published for an additional 18 months after 2021, it is recognized that there may be a need for authorized institutions to issue new USD LIBOR-linked contracts under exceptional circumstances, until June 2023, to manage risks associated with the pre-existing USD LIBOR-linked contracts. HKMA notes that banking regulators in several jurisdictions have specified the exceptional circumstances under which the supervised banks are permitted to issue new USD LIBOR-linked contracts after 2021. Having consulted the Treasury Markets Association and other relevant industry bodies, HKMA is also setting out the circumstances under which authorized institutions are permitted to issue new USD LIBOR-linked contracts after 2021:

    • Transactions that reduce or hedge an authorized institutions or its clients’ USD LIBOR exposures connected with contracts entered into before January 01, 2022
    • Market making in support of client activities related to USD LIBOR transactions executed before January 01, 2022
    • Novations of USD LIBOR transactions executed before January 01, 2022
    • Transactions executed for purposes of required participation in a central counterparty auction procedure in the case of a member default, including transactions to hedge the resulting USD LIBOR exposure

    If authorized institutions come across other exceptional circumstances necessitating the issuance of new USD LIBOR-linked contracts after 2021 for risk management purposes, they should approach HKMA to discuss how these cases should be handled. HKMA will continue to monitor market developments and update the aforementioned list of exceptional circumstances, as appropriate.

    Keywords: Asia Pacific, Hong Kong, Banking, Benchmark Reforms, Interest Rate Benchmarks ARRC, LIBOR, SOFR, Risk Free Rates, HKMA

    Related Articles
    News

    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).

    February 28, 2024 WebPage Regulatory News
    News

    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.

    February 28, 2024 WebPage Regulatory News
    News

    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.

    February 26, 2024 WebPage Regulatory News
    News

    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.

    February 23, 2024 WebPage Regulatory News
    News

    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.

    February 23, 2024 WebPage Regulatory News
    News

    BIS Bulletin Examines Cognitive Limits of Large Language Models

    The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.

    January 25, 2024 WebPage Regulatory News
    News

    ECB is Conducting First Cyber Risk Stress Test for Banks

    As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.

    January 24, 2024 WebPage Regulatory News
    News

    EBA Continues Momentum Toward Strengthening Prudential Rules for Banks

    A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.

    January 24, 2024 WebPage Regulatory News
    News

    EU and UK Agencies Issue Updates on Final Basel III Rules

    The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards

    December 19, 2023 WebPage Regulatory News
    News

    Industry Agency Expects Considerable Uptake for Swiss Climate Scores

    The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.

    December 18, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8952