BOJ and JFSA published a response to the IBA announcement on the end date of LIBOR panel publication and the FCA announcement on the intention to consult on the publication of synthetic JPY LIBOR. In their response, BOJ and JFSA have specified the actions needed toward the end of 2021 when panel-based LIBOR will cease, in addition to setting out their expectations with respect to the synthetic JPY LIBOR.
In principle, either active conversion to alternative reference rates or insertion of fallback language is necessary for legacy contracts referencing LIBOR in preparation for the permanent cessation of LIBOR. On March 05, 2021, IBA notified that panel-based LIBOR will cease at the end of 2021, except for certain USD LIBOR settings. According to the response statement, it is important that each financial institution should proceed to explain to its customers and amend contracts to progress either active conversion or insertion of fallback language as soon as practicable, in conformity with the “Roadmap to prepare for the discontinuation of LIBOR” released by the Cross-Industry Committee on JPY Interest Rate Benchmarks in August 2020 as well as the transition plan of each financial institution.
While FCA has announced that it will consult on using the proposed new powers to require publication of synthetic JPY LIBOR for one additional year after the end of 2021, the Financial Services Bill introduced to the UK Parliament in October 2020 has not yet been enacted. Even if the Bill is enacted, in the UK, as expected, FCA could only compel IBA to publish a synthetic LIBOR for a limited period of time and its use will be restricted to legacy contracts that cannot feasibly be transitioned away from LIBOR. Therefore, it is of utmost importance that preparations toward the transition away from LIBOR continue without reliance on synthetic LIBOR. Continuous efforts are necessary to cease the issuance of new loans and bonds referencing JPY LIBOR by the end of June 2021 and to significantly reduce the amount of loans and bonds referencing JPY LIBOR by the end of September 2021. While it is premature to consider the use of synthetic JPY LIBOR at the moment, the following are the expectations of BOJ and JFSA with respect to the potential publication of synthetic JPY LIBOR:
- Use of synthetic JPY LIBOR in new contracts and transactions. It is of utmost importance to steadily reduce the amount of contracts referencing JPY LIBOR to advance orderly transition away from JPY LIBOR, even if synthetic JPY LIBOR can be a “safety net.” Any synthetic JPY LIBOR should not be used in new contracts and transactions.
- Use of synthetic JPY LIBOR in legacy contracts and transactions. In Japan, synthetic JPY LIBOR should be considered as a potential “safety net” and used only for legacy contracts that cannot feasibly be transitioned away from JPY LIBOR. The Cross-Industry Committee, in close cooperation with a wide range of market participants, intends to discuss the risks and uncertainties with a view to considering the nature of potential tough legacy that cannot be transitioned away from JPY LIBOR before the end of 2021.
Keywords: Asia Pacific, Japan, Banking, Securities, LIBOR, Interest Rate Benchmarks, Benchmark Reforms, Basel, LIBOR Transition, Synthetic LIBOR, IBA, FCA, BOJ, JFSA
Previous ArticlePRA and FCA Consult on Bilateral Margin Requirements for Derivatives
APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.
EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).
HM Treasury notified that, after considering all responses, the government intends to bring forward further legislation, when the Parliamentary time allows, to address issues identified in the consultation on supporting the wind-down of critical benchmarks.
EIOPA launched the 2021 stress test for the insurance sector in EU.
UK authorities jointly published the third edition of Regulatory Initiatives Grid setting out the planned regulatory initiatives for the next 24 months.
EC is requesting feedback on the proposed Commission Delegated Regulation on the content, methodology, and presentation of information that large financial and non-financial undertakings should disclose about their environmentally sustainable economic activities under the Taxonomy Regulation.
OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.
Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.
ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.
EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.