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LIBOR Newsletter

LIBOR Newsletter

Welcome to KPMG’s third issue of our monthly LIBOR newsletter in which we provide updates on LIBOR and other benchmark interest rate developments that directly impact banks and consider the potential implications of the related regulatory requirements.

Regulatory Updates

1. HKMA updates on the interest rate benchmark reform

Howard Lee, Deputy Chief Executive of the Hong Kong Monetary Authority (HKMA), published a signed article titled “Reform of Interest Rate Benchmarks”. The article provides updates on the identification of alternative reference rate and the preparatory work for the phase-out of LIBOR, including the need for Authorised Institutions to address the HKD 3.8 trillion of assets referencing HIBOR in Hong Kong.

2 May 2019 HKMA

 

2. IASB proposes amendments to IFRS Standards in response to IBOR reform

The International Accounting Standards Board (IASB) published a consultation on proposed changes to the financial instruments standards, IAS 39 and IFRS 9, in light of the reform of interest rate benchmarks. IASB proposed to amend IFRS 9 and IAS 39 to provide relief from specific hedge accounting requirements that could have resulted in the discontinuation of hedge accounting solely due to the uncertainty arising from interest rate benchmark reform.

3 May 2019 IASB

 

3. ASIC urges financial institutions to plan for LIBOR transition

The Australian Securities and Investments Commission (ASIC) wrote to the CEOs of several major Australian financial institutions regarding their preparations for the end of LIBOR. The purpose of the letter is to better understand how major Australian financial institutions are preparing to transition away from LIBOR to alternative benchmarks. ASIC is seeking assurance that senior management in these institutions fully appreciates the impact and risks and takes appropriate action ahead of the end of 2021.

9 May 2019 ASIC

 

4. Bank of England warns insurers over LIBOR transition

David Rule, executive director of insurance supervision at the Bank of England’s Prudential Regulation Authority, emphasised to insurers that the transition out of LIBOR is a top priority, during his speech at an industry seminar. He encouraged insurers to continue to focus on the actions within their control such as identifying LIBOR exposure, engaging with counterparties, and preparing for operational changes.

14 May 2019 Bank of England

 

5. Bank of England updates progress on adoption of risk-free rates in sterling markets

On behalf of the Working Group on Sterling Risk-Free Reference Rates, the Bank of England released a statement to update on progress in the adoption of Sterling Overnight Index Average (SONIA) in sterling markets, including work currently underway to develop a term benchmark based on that risk-free rate. Benchmark administrators, FTSE Russell, ICE Benchmark Administration, and Refinitiv, are working on the development of the Term SONIA Reference Rate.

15 May 2019 Bank of England

 

6. ECB consults on EONIA to €STR legal action plan

The European Central Bank (ECB) working group on euro risk-free rates launched a public consultation on its draft recommendations to address the legal implications for new and legacy contracts referencing the euro overnight index average (EONIA) as a result of the proposed transition from EONIA to the euro short-term rate (€STR).

15 May 2019 ECB

Industry Update

1. ARRC highlights progress in SOFR

The Alternative Reference Rates Committee (ARRC) issued a document to commemorate the one-year anniversary of the publication of the Secured Overnight Financing Rate (SOFR), which is the rate that the ARRC selected as its preferred alternative to U.S. dollar LIBOR. The document highlighted the evolution of liquidity in SOFR-linked markets, the development of fallback contract language, and the breadth of market participant involvement in the ARRC.

29 April 2019 ARRC

 

2. ISDA publishes two consultations on benchmark fallbacks

The International Swaps and Derivatives Association (ISDA) launched two new consultations on benchmark fallbacks. The first consultation covers adjustments that would apply to fallback rates in the event certain interbank offered rates (including US dollar LIBOR, Hong Kong HIBOR, and the Canadian CDOR) are permanently discontinued. The other consultation relates to pre-cessation issues for LIBOR and certain other IBORs. Both consultations are open until 12 July 2019.

16 May 2019 ISDA

Contact Us

Simon Topping
Partner,
Regulatory Advisory
KPMG China
Tom Jenkins
Partner, Head of Financial
Risk Management
KPMG China
Michael Monteforte
Principal,
Financial Risk Management
KPMG China
Marie Gervacio
Partner, Financial Risk Management
KPMG China
Edwin Hui
Director,
IT Advisory
KPMG China
Desmond Yu
Associate Director,
Financial Risk Management
KPMG China