Featured Product

    HKMA Statement on Transition Related to Interest Rate Benchmark Reform

    March 05, 2019

    HKMA is requesting authorized institutions to make preparations for the transition associated with the interest rate benchmark reform being pursued under the auspices of FSB. HKMA considers it important that authorized institutions should start to make preparation for the transition to alternative reference rates, in case the need to fall back on such alternative reference rates arises.

    The boards of directors of locally incorporated authorized institutions and the head/regional offices of authorized institutions incorporated overseas should provide oversight of the process and be kept informed of the progress of the preparatory work. The preparatory work should cover the following elements:

    • Quantification and monitoring of affected exposures regularly
    • Identification and evaluation of key risks arising from the reform under different scenarios (including but not limited to a London Interbank Offered Rate, or LIBOR, discontinuation scenario)
    • Formulating an action plan to prudently manage the risks identified
    • Monitoring closely the developments of the benchmark reform both in Hong Kong and internationally and updating the scenarios and action plan, as appropriate

    In the past years, FSB has been working with authorities and standard-setting bodies to develop reform proposals to enhance the reliability and robustness of interest rate benchmarks. In UK, FCA has indicated that LIBOR may discontinue after the end of 2021. Thus, FCA and PRA have jointly written to banks to remind them to pay attention to risks associated with the transition to alternative reference rates. As an FSB member, Hong Kong is obliged to follow the FSB recommendation to identify an alternative reference rate to the Hong Kong Interbank Offered Rate (HIBOR), which is a widely recognized benchmark by industry stakeholders. The alternative reference rate should be nearly risk-free and should serve as a fallback for HIBOR. In this connection, the Treasury Market Association has proposed to adopt the Hong Kong Dollar Overnight Index Average (HONIA) as the alternative reference rate and plans to consult industry stakeholders later in the year.

    Both LIBOR and HIBOR are used extensively in the Hong Kong banking industry. It is estimated that, as of December 2018, HKD 3.8 trillion of authorized institutions’ US dollar assets referenced LIBOR while HKD 3.4 trillion of HK dollar assets referenced HIBOR, representing about 36% of authorized institutions’ total assets denominated in the two currencies. Therefore, the ongoing interest rate benchmark reform will have significant implications on authorized institutions’ businesses, risk management, and operational processes; moreover, the corresponding preparatory work can be substantial and complicated. As the reform develops, HKMA may approach authorized institutions again to understand their progress and readiness for the transition.

    Keywords: Asia Pacific, Hong Kong, Banking, Securities, Interest Rate Risk, Interest Rate Benchmarks, LIBOR, HIBOR, Risk Free Rate, HKMA

    Related Articles
    News

    APRA Issues Interim Update to Policy Priorities for 2021 and Beyond

    In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.

    September 24, 2021 WebPage Regulatory News
    News

    EC Adopts Solvency II and Resolution Rules Package for Insurers

    The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.

    September 22, 2021 WebPage Regulatory News
    News

    OCC Issues Booklets on Regulatory Reporting and Earnings

    The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.

    September 22, 2021 WebPage Regulatory News
    News

    ECB Sets Out Results of Economy-Wide Climate Stress Tests

    The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.

    September 22, 2021 WebPage Regulatory News
    News

    EBA Examines Implications of Increasing Use of Digital Platforms in EU

    The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.

    September 21, 2021 WebPage Regulatory News
    News

    HKMA Issues Updates on Policy Measures Intended to Ease COVID Impact

    The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.

    September 21, 2021 WebPage Regulatory News
    News

    ISDA Responds to BCBS Proposal on Treatment of Cryptoasset Exposures

    The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.

    September 21, 2021 WebPage Regulatory News
    News

    BIS Quarterly Review Discusses Developments in Fintech and ESG Space

    BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.

    September 20, 2021 WebPage Regulatory News
    News

    BCBS to Consult on Supervisory Practices for Climate Risks by Year-End

    The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards

    September 20, 2021 WebPage Regulatory News
    News

    OCC Identifies Operational Risk Deficiencies in MUFG Union Bank

    The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.

    September 20, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7494