Hong Kong SAR - HKMA publishes findings on the Survey on Reform of Interest Rate Benchmarks

The HKMA has published its conclusions on the latest results of the Survey on Reform of Interest Rate Benchmarks and key milestones that authorized institutions (AIs) should endeavour to achieve in the transition to alternative reference rates (ARRs). 

Latest survey results

The latest results of the survey highlighted the growth (and associated risks) in the amount of LIBOR-linked exposures maturing beyond 2021 which have no adequate fall-back provisions in the six months ending 31 March 2020.  That being said, the HKMA notes that AIs had made further  progress  in  their  preparation  for  the  transition, with a significant proportion  of  AIs  which  had  developed  a  bank-wide  transition  plan increased by 23% to 61% (as of March 2020).  More details of the survey results and statistics on bank transition plans can be found in Annex 1.

Transition milestones

Notwithstanding  the  outbreak  of  COVID-19,  financial  authorities around  the  world such as the Financial Stability Board, The Working Group on Sterling Risk-Free Reference Rates in the UK and the Alternative Reference Rates Committee in the US have issued statements to the effect that they remain  committed  to  the  original  respective transition  timelines. More details  on  recent major developments relating to the benchmark reform are contained in Annex 2.

In relation to Hong Kong SAR, the HKMA along with the Treasure Markets Association (TMA) has noted the following transition milestones which AIs are expected to achieve:

  1. AIs  should  be  in  a  position  to  offer  products  referencing  the  ARRs  to LIBOR from 1 January 2021;
  2. Adequate  fall-back  provisions  should  be  included  in  all  newly  issued LIBOR-linked contracts that will mature after 2021 from 1 January 2021; and
  3. AIs  should  cease  to  issue  new  LIBOR-linked  products  that  will  mature after 2021 by 30 June 2021.

The HKMA notes that AIs are expected to achieve the above transition milestones and those AIs which foresee difficulties in meeting this timeline should discuss with the HKMA as soon as possible.

To assist AIs to prepare for the transition, the Asia Securities Industry and Financial Markets Association (ASIFMA) has  agreed  to develop a transition guide. The HKMA is also working with the TMA to develop another self-explanatory note about the benchmark reform to be distributed to corporate customers to assist them in making early preparations for the reform. The HKMA and TMA are also in discussions to evaluate the need for suitable fall-back provisions for HIBOR contracts, noting that there is no intention to discontinue the local benchmark.