JFSA Survey Indicates More Preparations Required for LIBOR Transition
JFSA presented the results of a joint survey it conducted with BOJ on the quantitative London Inter-bank Offered Rate (LIBOR) exposures and the qualitative LIBOR transition progress. The survey was conducted on 278 financial institutions, including banks, securities companies, and insurance companies. The survey results highlight that, since the LIBOR transition requires comprehensive actions, specific preparations are needed with responsible and active involvement of management officials. As the next steps, JFSA and BOJ will monitor whether financial institutions take necessary actions in view of the time limit of end-2021. To this end, the two entities will deliberate on the need to set more specific core targets and conduct on-site monitoring, taking into account the progress in financial institutions’ preparations for LIBOR transition.
As per the assessment, the key actions needed are as follows:
- Financial institutions with a large number of contracts maturing beyond end-2021 with no fallback provisions should press ahead with necessary actions for customers given the limited time available. They need to promptly set policies on new products referencing risk-free rat and on new contracts referencing LIBOR, so that the number of contracts referencing LIBOR will not increase.
- Financial institutions with a larger number of contracts need to strengthen coordination among customer services, back office, and legal sections as they may incur more costs on those sections than anticipated. Even if they have fallback provisions, if they take the “amendment approach,” they need to prepare for scenarios where a number of consultations with customers can arise at one time.
- Financial institutions that have not identified IT systems requiring upgrades need to do so promptly. Considering the time required to complete such upgrades, they need to prioritize which systems to upgrade first, clarify the schedule, and secure sufficient budgets for such upgrades.
- Financial institutions that have issued bonds referencing LIBOR must take procedures according to the applicable laws of each jurisdiction to revise contractual terms; in principle, they need to host bondholders’ meetings for those issued in Japan, based on the Companies Act.
- If financial institutions use LIBOR for their asset-liability management and other risk management, they need to consider reviewing their management framework.
- Financial institutions need to identify issues and concerns associated with accounting and discuss them with outside auditors.
The two-fold aim of this survey is to allow supervisory authorities to identify the financial institutions’ quantification of LIBOR exposure (the number of contracts referencing LIBOR), these institutions' progress toward transition from LIBOR to alternative reference rates, and their internal preparedness for this transition. The survey is planned to be conducted regularly to follow up the progress and status of LIBOR transition.
Keywords: Asia Pacific, Japan, Banking, Insurance, Securities, LIBOR, Risk-Free Rates, Interest Rate Benchmarks, Derivatives, Benchmark Reforms, BOJ, JFSA
Previous Article
FASB Proposes Improvements to Credit Losses Standard in USRelated 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.