BOJ and JFSA Write to Financial Institutions on LIBOR Transition
BOJ, together with JFSA, has written to the CEOs of major financial institutions regarding LIBOR transition. The letter is intended to urge financial institutions to take actions for permanent cessation of LIBOR at the end of 2021. The letter also requests submission of relevant materials, by July 10, 2020, for review of the progress of preparedness of individual firms. Although the letter has been sent to some financial institutions, preparedness of other financial institutions will also be monitored based on the contents of the letter. Any financial institution using LIBOR is expected to accelerate its actions by responsible and active involvement of management officials with due consideration for description of the letter.
The letter details that the following would be considered as actions generally required for the financial institutions:
- The plan regarding actions for “transition” or “fallback” for products and transactions referencing LIBOR has already been developed, including schedule. The board of directors or management has already approved the transition plan. The board of directors or management receives regular updates on progress of the transition plan and provide necessary directions on the actions of the plan.
- Robust fallback provisions should be inserted in new contracts and products referencing LIBOR with a maturity beyond the end of 2021. Transition to alternative rates or introduction of fallback provisions should be made as soon as possible in existing contracts and products referencing LIBOR with a maturity beyond the end of 2021. Target for termination of new issuance and contracts of LIBOR-referenced cash products (loans and bonds) maturing beyond the end of 2021 has been set.
- New products referencing risk-free rates should be available in the IT systems by early 2021. If products or transactions could not be available in the IT systems (in a case of part of procedure not to be supported by the IT system), operational rules and procedures should be reviewed to be able to provide new products referencing risk-free rates manually by the end of 2020.
The letter requests financial institutions to submit relevant materials approved by the board of directors or management, covering the following elements:
- Governance framework for LIBOR cessation issues
- Range of potential impact arising from permanent cessation of LIBOR, including specific name of IT systems, operational rules and procedures
- Contents of the transition plan, including schedule
- Framework for the management to oversee development and progress on the transition plan, and status of ensuring the effectiveness of the framework
- Status of securing and allocating resources (personnel and budget), based on the results of “Joint Survey on the Use of LIBOR” conducted by JFSA and BOJ in October 2019, and arrangements for flexible allocation of resources along the progress of the implementation timeline
- Status of identifying and evaluating conduct risks arising from transition or fallback and measures to mitigate these conduct risks
- Policy of preparation for unexpected termination of LIBOR-referenced transactions ahead of the schedule due to the decline of market liquidity in the products and transactions referencing LIBOR
- Disclosure policy in financial statements and investor relationships
Keywords: Asia Pacific, Japan, Banking, Securities, LIBOR, Interest Rate Benchmark, Risk-Free Rates, Governance, Benchmark Reforms, BOJ, JFSA
Previous Article
BoM Announces Support Measures to Address Impact of PandemicRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
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).
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.
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.
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.
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.
