Featured Product

    HKMA Outlines Transition Milestones for Interest Rate Benchmark Reform

    July 10, 2020

    HKMA published the latest results of the survey on reform of interest rate benchmarks and announced the key milestones that authorized institutions should endeavor to achieve in the transition to alternative reference rates. Annex 1 to the HKMA circular presents the survey results while Annex 2 provides details on the recent developments related to the benchmark reform. In accordance with the announced transition milestones, authorized institutions should cease to issue new LIBOR-linked products that will mature after 2021 by June 30, 2021.

    The latest results of the survey showed that the amount of LIBOR-linked exposures maturing beyond 2021 and having no adequate fallback provisions had grown in the six months ending March 31, 2020. This suggests that the risks associated with the benchmark reform continue to build up in the banking system. Nonetheless, authorized institutions have made further progress in their preparation for the transition. By the end of March 2020, the proportion of authorized institutions that had developed a bank-wide transition plan increased by 23% to 61%. All except a few smaller institutions have already come up with a transition plan, based on the most recent information collected by HKMA.

    Notwithstanding the outbreak of COVID-19, financial authorities worldwide remain committed to the original transition timeline. FSB issued a statement on July 01, 2020, reaffirming its view that firms across all jurisdictions should continue to remove remaining dependencies on LIBOR by the end of 2021. The Working Group on Sterling Risk-Free Reference Rates in the UK and the Alternative Reference Rates Committee in the US have issued further statements to supplement their earlier work plans with detailed transition milestones. These include clear timelines for financial institutions to offer non-LIBOR linked products and to cease issuing products referencing LIBOR. With regard to the developments in other financial markets, HKMA has, in consultation with the Treasury Markets Association or TMA, developed the following transition milestones that authorized institutions are expected to achieve:

    • Authorized institutions should be in a position to offer products referencing the alternative reference rates to LIBOR from January 01, 2021.
    • Adequate fallback provisions should be included in all newly issued LIBOR-linked contracts that will mature after 2021 from January 01, 2021.
    • Authorized institutions should cease to issue new LIBOR-linked products that will mature after 2021 by June 30, 2021.

    HKMA expects authorized institutions to endeavor to achieve the above transition milestones and put in place a detailed work plan (by products and by business lines) for this purpose. HKMA advises that authorized institutions having difficulties to meet this timeline should discuss with HKMA as soon as they are aware of their inability to comply with this industry standard. To assist authorized institutions to prepare for the transition, the Asia Securities Industry and Financial Markets Association (ASIFMA), at the request of HKMA, has agreed to develop a transition guide. HKMA is also working with the the Treasury Markets Association to develop a self-explanatory note about the benchmark reform, which authorized institutions can distribute to their corporate customers to impress on them the need to make early preparations. Separately, HKMA, along with the Treasury Markets Association, is evaluating the need for suitable fallback provisions for HIBOR contracts, although as pointed out in previous communications there is no intention to discontinue the local benchmark. 

     

    Keywords: Asia Pacific, Hong Kong, Banking, Securities, Benchmark Reforms, IBOR, HIBOR, Fallback Provisions, LIBOR, Transition Measures, Derivatives, HKMA

    Related Articles
    News

    EBA Finalizes Remuneration Standards for Investment Firms in EU

    EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).

    January 21, 2021 WebPage Regulatory News
    News

    ECA Recommends Actions to Enhance Resolution Planning for Banks

    EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.

    January 20, 2021 WebPage Regulatory News
    News

    BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK

    BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.

    January 20, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules on Identity Verification of Depositor Protection

    PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).

    January 20, 2021 WebPage Regulatory News
    News

    FSB Publishes Work Program for 2021

    FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.

    January 20, 2021 WebPage Regulatory News
    News

    FCA Issues Update on Move to New Data Collection Platform

    FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.

    January 20, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Derivation Rules for Reporting by Banks

    Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.

    January 19, 2021 WebPage Regulatory News
    News

    FED Revises Capital Planning and Stress Testing Requirements for Banks

    FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.

    January 19, 2021 WebPage Regulatory News
    News

    ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020

    ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.

    January 19, 2021 WebPage Regulatory News
    News

    ESAs Publish Reporting Templates for Financial Conglomerates

    ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.

    January 18, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6484