In an ABS virtual roundtable, MAS deputy managing director Jacqueline Loh spoke of a three-pillar approach to support a smooth transition from SOR to SORA.
MAS (Monetary Authority of Singapore) has warned that banks that do not keep pace with SORA transition timelines will face more intensive supervisory engagement at the senior management level.
The regulator’s view is that early readiness is an essential ingredient in achieving a smooth transition from SOR to SORA by end-2021, according to MAS deputy managing director Jacqueline Loh, speaking at a virtual roundtable organised by ABS (the Association of Banks in Singapore).
“A bank that adopts a ‘wait and see’ attitude and leaves things till next year, is likely to find itself with too much on its plate before the end-2021 deadline,” she said. “This is something which we must avoid.”
A key part of Singapore’s transition is to move legacy contracts from SOR to SORA. Loh said close to SGD 1.4 trillion notional value of outstanding SGD derivatives contracts referencing SOR. In SGD cash markets, around 12,000 SOR contracts worth SGD 95 billion will mature after end-2021 and will need to transition.
Loh spoke of a three-pillar approach to support a smooth transition from legacy contracts: preparing early at the individual firm-level; coordinating well at the industry-level; and communicating clearly and effectively at the customer-level.
At the firm-level, both banks and corporates must be ready to carry out this transition, Loh said. “This includes identifying risk exposures, putting in place appropriate contractual fallbacks, ensuring systems readiness, understanding the features of new SORA products, and ultimately, transacting in these products.”
Loh pointed to some “early wins”, including OCBC’s SORA-based loan with CapitaLand in June, DBS’s SORA-based loan with Wilmar in August, and UOB’s term loan pegged to both SORA and SOFR with CapitaLand earlier this month. OCBC has also launched a retail mortgage loan product, while DBS has launched a business property loan product.
MAS will be stepping up supervisory engagement to ensure banks are well prepared for the transition. Those that do not keep pace with industry transition timelines can expect to have more intensive supervisory engagement at the senior management level, Loh said.
At the industry-level, the focus must be on achieving a smooth and well-coordinated transition, she said, adding that the key challenge is how to encourage market participants to shift from a deep and liquid SOR-based market to the still-nascent SORA-based market.
For its part, MAS plans to expand on last month’s SGD 500 million issuance of SORA floating-rate notes, by increasing the issuance sizes and lengthening the range of tenors. Loh said more details will be announced by year-end.
MAS also plans to issue additional guidance next month setting out specific deadlines to cease the usage of SOR in new financial products.
“With the end-2021 deadline approaching, it is not prudent for banks and end-customers to enter into new SOR contracts that mature beyond end-2021. Doing so only compounds the problem that banks and customers will eventually have to deal with,” Loh said.
At the customer-level, Loh emphasised the need for clear, effective and timely communication by banks to ensure customers have enough time and information to evaluate available options and make informed decisions.
“To this end, banks should ensure that their staff are well trained to engage clients, and to handle transition issues that may arise,” she said.
To complement banks’ efforts, MAS will work with industry bodies to roll out public education programmes on SORA products and markets later in the year.