HKMA announced the publication of a report that studies the implications of financial benchmark reforms. This report by the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP) provides a brief overview of the three areas of financial benchmark reforms—discontinuation of London Interbank Offered Rate (LIBOR), implementation of the EU Benchmarks Regulation, and reform of the local benchmarks in EMEAP markets. EMEAP comprises the central banks and monetary authorities of eleven countries in Asia Pacific: Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, and Thailand.
This report, which is based on a study conducted by the EMEAP Working Group on Financial Markets, assesses the extent to which EMEAP markets are affected, identifies the issues and challenges posed to EMEAP countries, and examines the readiness of EMEAP countries in dealing with such issues and challenges. The report provides a brief overview of the above-mentioned three areas of financial benchmark reforms, summarizes the results of the survey, and identifies risk scenarios while proposing policy recommendations for the consideration of EMEAP members.
In terms of LIBOR discontinuation, the report concludes that a more detailed information on financial exposures is necessary to complete the overall risk assessment. LIBOR discontinuation may be more problematic for corporate bonds, syndicated loans, and other cash products rather than for derivatives. In the area of the EU Benchmarks Regulation, the potential impact is expected to be moderate, particularly with the extension of transition deadline to January 01, 2022. Additionally, the potential impact on the functioning of regional markets appears to be contained, according to the results of the study. The following are the key policy recommendations of the working group in each area:
- LIBOR discontinuation. One policy recommendation is for the central banks or banking supervisors to require banks to perform risk assessment and impact analysis of their LIBOR exposures under different scenarios to develop their governance such as the identification of key senior managers and provide transition plans toward alternative reference rates (ARRs), in particular in terms of migrating legacy contracts. Encouraging the launch and trading of new ARR-based products such as bond issues, futures, and swaps, where appropriate, has also been recommended.
- EU Benchmarks Regulation. The recommendation is to prepare early and perform gap analysis toward the compliance of IOSCO principles and toward achieving equivalence with the EU Benchmarks Regulation, especially for the systematically important benchmarks. Another recommendations are to start early dialog with ESMA on cooperation arrangements as the process could take time and to keep in mind the interaction between EU Regulation and other benchmark reforms and LIBOR discontinuation.
- Local benchmark reforms. One of the policy recommendations is to encourage the launch and trading of new ARR-based products such as bond issues, futures, and swaps, where appropriate. When determining calculation methodologies of alternative risk-free reference rates (RFR) and term-RFRs, consider not only the correlation against existing benchmarks, but also the potential economic transfer, which may be crucial in encouraging adoption of ARRs. Finally, engage with the industry and market participants closely in determining the calculation methodology of alternative benchmarks and encourage market participants, especially banks, to be prepared for a scenario where they need to transition to alternative benchmarks; such a scenario could involve conducting regular review on the exposure to affected benchmarks, putting in place robust contractual fallbacks in the scenario that the local benchmarks were to cease, and formulating action plans to manage the associated risks or changes.
Keywords: Asia Pacific, Banking, Securities, Benchmark Reforms, LIBOR, Interest Rate Benchmarks, EMEAP, HKMA
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.