On 19 August 2021, the Hong Kong Monetary Authority (“HKMA”) issued Circular B1/15C to all authorised institutions (“AIs”) with the following updates on recent developments on the reform of interest rate benchmarks.
Continue Reading HKMA Circular on Term SOFR, new USD LIBOR-linked contracts after 2021, and stepping up surveillance of AI readiness
On 8 July 2021, Hong Kong Monetary Authority (HKMA) issued a circular to all authorised institutions (AIs) requesting them to give a further push to promote the corporate sector’s awareness of LIBOR transition.
HKMA requested each AI to (i) distribute a leaflet (enclosed with the circular) by 31 July 2021 to all of its corporate customers that have outstanding LIBOR-linked contracts with the AI; and (ii) send an email confirmation to HKMA after completing that exercise.
Hong Kong Monetary Authority (“HKMA”) is the front-line regulator for licensed banks and deposit-taking companies (“AIs” or “authorised institutions”) in Hong Kong. LIBOR is used extensively in the Hong Kong banking sector. According to survey results released by HKMA in July 2020, LIBOR-linked products represented 30% and 11% respectively of the banking system’s total assets and total liabilities denominated in foreign currencies as of March 2020. In addition, there were about HK$35 trillion worth of derivative contracts referencing LIBOR.
The reform of the benchmark interest rate has significant implications for AIs in Hong Kong. HKMA has issued a number of Circulars to AIs regarding benchmark rate reforms since March 2019, requiring AIs to get ready for the transition. Similar to the regulators in other jurisdictions, HKMA mainly focuses on bank conduct and treat-customer-fairly principles, and readiness of systems and operations ahead of the transition.