Featured Product

    HKMA Announces Results of Study on Financial Benchmark Reforms

    September 24, 2019

    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

    Related Articles
    News

    PRA and FPC Finalize Changes to Leverage Ratio Framework in UK

    The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA

    October 08, 2021 WebPage Regulatory News
    News

    CFPB Proposes Rule on Small Business Lending Data Collection

    The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.

    October 08, 2021 WebPage Regulatory News
    News

    PRA Decides to Maintain O-SII Buffers for Another Year

    The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.

    October 08, 2021 WebPage Regulatory News
    News

    FSB Report Assesses Implementation of Recommendations on Stablecoins

    The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.

    October 07, 2021 WebPage Regulatory News
    News

    APRA Updates Loan Serviceability Expectations for Home Lending

    In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.

    October 06, 2021 WebPage Regulatory News
    News

    CPMI and IOSCO Consult on Guidance on Stablecoin Arrangements

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.

    October 06, 2021 WebPage Regulatory News
    News

    EBA and EIOPA Set Out Work Priorities for 2022

    The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.

    October 05, 2021 WebPage Regulatory News
    News

    MFSA Issues Reporting Updates and Guidance for Banks

    The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.

    October 05, 2021 WebPage Regulatory News
    News

    EC Publishes Decision on List of Equivalent Third Countries Under CRR

    The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).

    October 04, 2021 WebPage Regulatory News
    News

    EC Rule on Contractual Recognition of Write-Down and Conversion Powers

    EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.

    October 04, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7552