BOT Issues Guidance on Operational Risk and Benchmark Transition
The Bank of Thailand (BOT), in coordination with the Securities and Exchange Commission (SEC) and other relevant agencies, is considering guidelines to regulate the use of digital assets as a means of payment for goods and services, to limit risks. Overall, using technology to promote financial innovation, enhancing the efficiency and security of the payment system, and safeguarding the stability of the overall economic and financial system will continue to be prioritized. BOT also published the guidelines on operational risk management of specialized financial institutions. The guidelines define the roles of the Board of Directors and senior management, focus on having an effective risk management system, and address information disclosures. In addition, BOT and the Steering Committee on Commercial Banks’ Preparedness for LIBOR Discontinuation have mutually agreed that financial institutions and market participants should actively transition their legacy contracts from referencing Thai Baht Interest Rate Fixing (THBFIX) to referencing other benchmarks as soon as possible.
BOT announced that, from July 01, 2022, all financial institutions shall cease offering new derivatives referencing THBFIX, such as Interest Rate Swaps (IRS) and Cross Currency Swap (CCS), except for risk management of THBFIX legacy contracts. All financial institutions should gradually reduce notional outstanding of their THBFIX derivatives maturing after 2025 as follows:
- Reduce total outstanding to 50% by mid-2022 and 25% by end-2022 (as compared with the numbers at end-June 2021)
- Reduce outstanding with clients to 30% by end-2022 (as compared with the numbers at end-June 2021)
The BOT and the Committee assess that liquidity in THBFIX derivatives market will gradually decline as the cessation date of THBFIX approaches. Therefore, market participants are strongly encouraged to unwind the existing THBFIX contracts or actively transition to THOR before mid-2022 while there is still enough liquidity in THBFIX derivatives market for the active transition. BOT would also facilitate a price discovery mechanism for the transition as reliable market prices would minimize value transfers. For residual contracts that are unable to transition before the cessation date of THBFIX, contractually robust fallback provisions should be incorporated. Nevertheless, market participants must be aware that Fallback Rate (THBFIX) would be published only until end of 2025 and there are limitations in its use.
Related Links
- Press Release on Use of Digital Assets
- Notification on Guidelines on Operational Risk Management (in Thai)
- Guidelines on Operational Risk Management (PDF in Thai)
- Press Release on Transition from THBFIX
Keywords: Asia Pacific, Thailand, Banking, Securities, Digital Assets, Operational Risk, Specialized Financial Institutions, LIBOR, THBFIX, Interest Rate Benchmarks, THOR, Benchmark Reforms, Governance, BOT
Previous Article
BoE Extends UAT Window for BEEDS, Issues Derivatives Clearing PolicyRelated Articles
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
