HKMA Sets Out Key LIBOR Transition Milestones for Banks

Fall-back provisions should be in place by January 2021, and authorised institutions should cease to issue new LIBOR-linked products maturing after 2021 by 30 June 2021.

The HKMA (Hong Kong Monetary Authority), in consultation with the TMA (Treasury Markets Association), has set out new milestones for Hong Kong banks to achieve as they transition from LIBOR to alternative reference rates (ARRs) by end-2021.

By 1 January 2021, all authorised institutions should be in a position to offer products referencing ARRs, and adequate fall-back provisions should be included in all newly issue LIBOR-linked contracts that will mature after 2021.

By 30 June 2021, all authorised institutions should cease to issue new LIBOR-linked products that will mature after 2021.

“The HKMA expects AIs to endeavour to achieve the above transition milestones and put in place a detailed work plan (by products and by business lines) for this purpose,” the regulator said in a circular.

“AIs having difficulties to meet this timeline should discuss with the HKMA as soon as they are aware of their inability to comply with this industry standard.”

According to the HKMA latest survey of Hong Kong banks, the amount of LIBOR-linked exposures maturing beyond 2021 and having no adequate fall-back provisions grew in the six months ending 31 March 2020.

“This suggested that the risks associated with the benchmark reform continued to build up in the banking system,” it said.

However, the HKMA notes significant progress by banks in developing transition plans. Up to 61 percent of banks had developed an organisational-wide transition plan by the end of March.

Up to 85 percent of Hong Kong banks had established a steering committee and/or appointed a senior executive to oversee transition preparations.

In order to help banks prepare for the transition, the HKMA has asked ASIFMA to develop a transition guide, available here.

In addition, the HKMA and TMA are preparing a self-explanatory note about benchmark reform for banks to distribute to corporate clients “to impress upon them the need to make early preparations”.

 

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