APAC IBOR Transition Benchmarking Study - Banking & Finance - Sia Partners
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R
E
P
O
R
T
APAC IBOR
Transition
Benchmarking Study.
July 2020 Banking & Finance.
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si a -p a r t n e r s. co m
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Content
6
•
Executive summary
8
• Summary of APAC IBOR transitions
9
10
• APAC IBOR deep dives
Hong Kong
11 Singapore
13 Japan
15 Australia
16 New Zealand
17 Thailand
18 Philippines
19 Indonesia
20 Malaysia
•
21 South Korea
22 Benchmarking study findings
23
•
Planning the next 12 months
24
• How Sia Partners can help
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Editorial
team.
M a x imilien B ou chet
Domit ille M ozat
Ernes t Yu e n
N ik hilesh Pa gru t
Joyce Chan0
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Foreword.
Financial benchmarks play a significant role in the global financial system. They
are referenced in a multitude of financial contracts, from derivatives and securities
to consumer and business loans.
Many interest rate benchmarks such as the London Interbank Offered Rate (LIBOR)
are calculated based on submissions from a panel of banks. However, since the
global financial crisis in 2008, there was a notable decline in the liquidity of the
unsecured money markets combined with incidents of benchmark manipulation.
In July 2013, IOSCO Principles for Financial Benchmarks have been published to
improve their robustness and integrity. One year later, the Financial Stability Board
Official Sector Steering Group released a report titled “Reforming Major Interest
Rate Benchmarks”, recommending relevant authorities and market participants to
develop and adopt appropriate alternative reference rates (ARRs), including risk-
free rates (RFRs).
In July 2017, the UK Financial Conduct Authority (FCA), announced that by the end
of 2021 the FCA would no longer compel panel banks to submit quotes for LIBOR.
And in March 2020, in response to the Covid-19 outbreak, the FCA stressed that
the assumption of an end of the LIBOR publication after 2021 has not changed.
Especially, the issuance of cash products linked to sterling LIBOR has to stop by the
end of Q3 2020 and the number of contracts referencing LIBOR must be notably
decreased by Q1 20211.
In Asia, most of the jurisdictions plan to adopt a multiple-rate approach for their
respective local benchmark reforms, with enhanced benchmarks expected to re-
main alongside alternative RFRs (transaction-based and insulated from manipula-
tions). However, Interbank Offered Rate (IBOR) transition is at different stages of
progress in APAC and seems particularly fragmented, as uncertainty still exists in
some jurisdictions (where the future of local benchmarks has not yet been settled)2.
While most regulators in Asia are not willing to rule out their local benchmarks,
some of these benchmarks take USD LIBOR as a direct input (e.g. in Thailand and
the Philippines), implying the LIBOR transition must be managed carefully and
without delay.
Since LIBOR demise is around the corner and only one year and a half is left for the
transition, we believe it is time to consider how far market participants have pro-
gressed in the transition, and how much further they need to go. For that purpose,
we conducted this APAC benchmark study to assess the state of readiness for
transition from LIBOR (and other interbank offered rates) to alternative reference
rates, as well as the challenges and nuances that market participants face in the
transition across Asia.
1
FCA Statement, 23 March 2020
2
As referred on page 8 of this report0
0
Executive Summary.
The first half of 2020 has proven to be the regulator and prepare for regu- Methodology
an unprecedented time with many firms latory scrutiny related to the tran-
operating under their business conti- sition; what are their approaches Discussions with financial institu-
nuity plan (BCP) due to Covid-19. Des- to communicating with customers tions, including global and regio-
pite the operational challenges, global and mitigating disputes and litiga- nal market players in the banking,
firms with IBOR transition plan in place tion risks asset management and securities
have continued to meet their key pro- services sectors.
gramme milestones. However, through Operations and systems: what
ongoing discussions with APAC head- is the current institutions’ level Interviews were structured through
quartered clients, it is clear that many of of operational and technology a standardised questionnaire, co-
them are not prepared for the transition. preparedness vering the 5 main areas of financial
This report aims to provide holistic in- benchmark reforms.
sights into the progress of the transi- Risk management and modelling:
tion in the region and explore the key what are the progress and challen- The findings presented in this report
challenges experienced by different fi- ges in updating risk management are based on the information provi-
nancial institutions. Our survey covered processes ded during the interviews conduc-
5 main areas of the benchmark reform: ted from March to May 2020.
Contract inventory and remedia-
Transition organization and go- tion: how institutions are invento- The respondent panel consists of
vernance: how institutions are rying their legacy contracts subject matter experts (SMEs) from
organising their IBOR transition the regulatory affairs, treasury, mar-
process The findings from the survey draw out ket and transformation functions,
the key focus areas for firms on both as well as people in charge of di-
Regulatory initiatives and litiga- the buy and sell sides as we edge clo- recting the LIBOR transition within
tion: how institutions engage with ser to the transition deadlines. their firms.0
0
Survey key findings.
Transition Organisation & Governance
82% 70% Some regional banks
and buy side firms have
not started transition
have a mature Global did not experience any
planning
led IBOR transition transition delays due to
programme Covid 19
Regulatory Initiatives & Litigation
67% 82% 91%
require greater clarity have external have interactions with the
from regulators especially communication plan to regulators, though mainly
on APAC IBORs mitigate litigation risk with HKMA and MAS
Operations & Systems
55% All firms
completed less 17% 33%
completed front to
back impact analysis than 50% completed target
operating model
complete loans
F2B impact
for derivatives of their transition design analysis
Risk Management
62% 8% 15% 38%
have capability to run completed risk completed factoring of are in progress of
transition scenarios to identification liquidity ratios in their assessing liquidity
measure risk impact and assessment transition ratio impact
Contract Inventory & Remediation
18% 33% 92% Client engagement
noted as the biggest
concern
began fallback option considered using AI began contract review
discussions with & machine learning tools
clients0
0
Summary of APAC IBOR
transitions3.
Comparatif des offres de streaming audio
Alternative
Key Transition
Jurisdiction Currency reference Approach
rates necessary?
rates
Multi-rate approach:
Hong Kong
HKD HIBOR HONIA Enhanced HIBOR to X
SAR continue alongside HONIA
Reformed
SIBOR
SIBOR Multi-rate approach: X
Singapore SGD Enhanced SIBOR to
Reformed continue alongside SORA
SIBOR
SIBOR √
TONAR or TIBOR
JPY LIBOR
or OIS Rate
√
Multi-rate approach:
JPY TIBOR is expected to continue
Japan JPY JPY TIBOR TIBOR alongside TONAR Euroyen TIBOR X
may be discontinued
Euroyen
TIBOR
TIBOR √
Multi-rate approach:
AONIA / RBA
Australia AUD BBSW
Cash Rate
Reformed BBSW to X
continue alongside AONIA
Multi-rate approach:
New
Zealand
NZD BKBM OCR BKBM to continue X
alongside OCR
THBFIX THOR Short term: multi-rate approach
Thailand THB Long term: THBFIX and BIBOR √
BIBOR THOR might be decommissioned
Not
PHIREF
identified yet
Philippines PHP Not identified yet N/A
Not
PHP BVAL
identified yet
Short term: multi-rate approach
Indonesia IDR JIBOR IndONIA Long term: JIBOR might be √
decommissioned
Not
Malaysia MYR KLIBOR
identified yet
Not identified yet N/A
Not
CD Rate identified yet
South
KRW Not identified yet N/A
Korea KORIBOR Not
identified yet
3
Based on Sia Partners independent research as of June 20200
0
APAC IBOR
deep dives.
The maturity of the IBOR transitions in APAC differs country by
country. Sia Partners has been actively monitoring the progress in
the region based on close participation in industry working groups
and discussions with our clients.1
1
Hong Kong.
Rate Description Challenges Current status
HIBOR Set of reference interest rates To remain compliant Changes made to enhance the robustness
for HKD deposits based on with international of HIBOR (independent oversight through
quotations provided by 12-20 standards establishment of a Surveillance and
banks and calculated by the (IOSCO Principles Governance Committee and issue of new
Hong Kong Association of for Financial policies on conflicts of interest, complaints,
Banks (HKAB) Benchmarks) whistleblowing and error correction)
Hong Kong Monetary Authority (HKMA)
works with the Treasury Market Association
(TMA) to ensure HIBOR compliance
HONIA Effective overnight and risk- Lacks sufficiently TMA will work with the industry to promote
free reference rate of HKD robust underlying development and trading of HONIA-based
unsecured lending transactions transaction data financial products
in the Hong Kong interbank
Lacks a term TMA will explore means of developing
market, executed through a
structure term rates for HKD, such as an Overnight
panel of contributing brokers
Index Swap (OIS) market for HONIA-based
transactions
Both LIBOR and HIBOR are used transaction data. In December 20195, will be undertaken to underpin the HI-
extensively in the Hong Kong banking the TMA published the Consultation BOR to transaction data to the greatest
industry. As of September 2019 4 , conclusions on technical refinements extent possible.
HK$4.5 trillion of authorized institu- to HONIA (data source, reporting win- Regarding the transition from IBOR
tions (AIs)’ assets referenced LIBOR, dow and publication time) to enhance rates, HKMA issued several circulars
amongst which HK$1.5 trillion will ma- the robustness of the benchmark. in 20196: the first one, in March, urged
ture after 2021, and HK$4.7 trillion are While HONIA serves as an alternative AIs to prepare for the transition and
referencing HIBOR. Moreover, Hong to HIBOR, there is currently no plan to start identifying and evaluating key
Kong banking sector’s derivatives ex- discontinue HIBOR. HIBOR has been in risks arising from the reform and for-
posures referencing LIBOR amounts place for many years and is still widely mulating firm-wide action plans. The
to HK$34.6 trillion (of which HK$16.1 recognised by market participants as a latest circular in October 2019 outlined
trillion will mature after 2021) while credible and reliable benchmark. Like HKMA will conduct a regular survey to
exposures referencing HIBOR totals a few other jurisdictions in the region, collect information on AIs’ exposures
HK$12.2 trillion. Hong Kong will adopt a multiple-rate referencing IBORs and the progress of
The TMA has proposed to adopt the approach. Meanwhile, TMA will conti- their preparatory work for the transi-
HONIA as the ARR. While lacking a nue to strengthen HIBOR to ensure tion to take suitable follow-up actions
term structure on its own, this reference that it remains in compliance with (results of the first survey for Q4 2019
rate is robust and based purely on international standards, and reforms have been published in April 2020).
LIBOR DISCONTINUATION
HIBOR: TMA will continue to strengthen HIBOR to ensure
Multi-rate approach:
that it remains in compliance with international standards
HONIA and HIBOR will co-exist in the market and
HONIA: Market participants are encouraged to
market participants are free to choose between them
incorporate HONIA into their business to reduce HIBOR
exposures
Before 2021 After
4
Results of Survey on Reform of Interest Rate Benchmarks for Q4 2019, HKMA, April 2020
5
Consultation conclusion on technical refinements to HKD Overnight Index Average (HONIA), TMA, December 2019
6
Circulars on interest rate benchmark reform, HKMA, March and October 20191
1
Singapore.
Rate Description Challenges Current status
SIBOR Daily reference rate based on Based on offered Work is ongoing to enhance its robustness
the interest rates at which banks rates and not and anchor it to market transactions to the
offer to lend unsecured funds transaction data extent possible
to other banks in the Singapore
wholesale money market (or
interbank market)
SOR Average interest rate on a FX SOR is pegged to To be replaced by SORA
Swap basis, as calculated from USD Libor
the actual transactions in USD/
SGD FX swap with USD LIBOR
as input
SORA Average rate of unsecured Overnight tenor only Monetary Authority of Singapore (MAS) will
overnight interbank SGD explore the publication of SORA averages
cash transactions brokered in for various tenors
Singapore
There are two key SGD interest rate enhanced waterfall methodology for rate. They also plan to provide indus-
benchmarks that are widely refe- SIBOR was conducted in the second try guidance on appropriate fallbacks
renced in financial contracts: SIBOR half of 20197. The Association of Banks for cash market products to market
and SOR. Currently, SOR is used for (ABS) is expected to provide an up- participants by mid-2020, as well as
cash market products (loans, bonds) date on the proposed enhancements guidance on a deadline for market
and derivatives and SIBOR is used for to SIBOR by end of June 2020, inclu- participants to cease originations of
cash market products (loans) but not ding the targeted implementation date new SOR contracts by the end of this
for derivatives. SOR is an FX swap of the new waterfall methodology. year 8.
implied interest rate, computed from The industry has plans to develop ac- While it is unclear the exact exposure
actual transactions in the USD/SGD FX tive trading of SORA derivatives from of the corporate loans held by Singa-
swap market, and using USD LIBOR the first half of 2020. ABS declared it pore banks that are priced using SOR
as an input. The mechanical depen- will be focusing in the next few mon- (SOR underpins the S$3.5 trillion
dence of SOR on USD LIBOR made it ths on readying market conventions SGD derivatives market 9 ), market
unreliable as a benchmark over the and infrastructure, building liquidity observers had said that the concern
long-run and SORA has been identi- in SORA markets, engaging early is less likely over an outsized expo-
fied as the ARR. adopters on pilot product structures sure, but that of ensuring an orderly
for SORA usage in the cash markets, transition.
SORA is a transaction-based bench- and helping customers’ transition le- The first DBS bond tied to SORA was
mark underpinned by a deep and gacy contracts. On the other hand, issued on the 14th of May 202010.
liquid overnight interbank funding MAS will explore the publication of
market. Published since 2005 by the SORA averages for various tenors
MAS, the availability of a long histori- and/or a SORA index by the end of
cal time series for SORA allows mar- 2020. ABS also stated that they will
ket participants to perform technical publish guidance on the use of com-
analysis and model trends for risk pounded SORA rates in various cash
management, asset-liability pricing, market products in 3Q 2020, as well
and trading simulations. Further SORA as a customer segmentation study
consultations and enhancements to to identify the types of products and
the reformed SIBOR are expected in market segments that could benefit
2020. Transitional testing of a new from the use of compounded SORA
7
Press Release, ABS, 1 July 2019
8
Steering Committee for SOR Transition to SORA, ABS, 19 March 2020
9
The Business Times, 19 March 2020
10
Press Release, DBS Bank, 6 May 20201
1
LIBOR DISCONTINUATION
SIBOR: Enhanced SIBOR’s
continued existence will consider
bank funding structures and
international developments
SIBOR: Enhanced SIBOR used for
cash market products (loans); but SOR: Encourage transition of
not for derivatives legacy derivatives and cash
market contracts to SORA
SOR: SOR still used for some cash
markets SORA: SORA (compounded) used Multi-rate approach:
for derivatives and some cash SOR to be replaced by SORA
SORA: Facilitate take-up of SORA market products
(compounded) for derivatives. Term SORA benchmark used for Enhanced SIBOR to continue
Develop term-SORA other cash market products alongside SORA
1H 2020 1H 2021 After 20211
1
Japan.
Rate Description Challenges Current status
JPY Average interbank interest rate Expected to be To be replaced by:
LIBOR at which banks on the London discontinued after • TONAR (unsecured risk-free rate)
money market are prepared to 2021 • TIBOR (unsecured interbank offered rate)
lend one another unsecured funds • OIS Rate
denominated in Japanese yen
TONAR Transaction-based benchmark, Overnight tenor only Trading of TONA Futures is expected to
representing the risk-free TONA futures trading resume at some point in 2020 • OIS rate is
unsecured interbank overnight is currently suspended, an option for a forward term rate for TONA
interest rate eliminating a possible (does not include information derived from
data source for futures trades)
TONA term structure
development
JPY Average interest rates quoted N/A N/A
TIBOR by reference banks on the
unsecured Japanese interbank
call market
Euroyen Average interest rates quoted by May be discontinued Possibility to develop an “adjusted JPY TIBOR”
TIBOR reference banks on the Japan Fallback rate should be individually
offshore market determined and agreed between the parties
to the contract
In April 2014, the Japanese Bankers nal investors are underpinned by the expectations of the Japanese risk-free
Association (JBA) transferred its TI- Euroyen Tibor as the benchmark rate. rate, received the most support as an
BOR calculation and publication ope- In December 2016, the “Study Group alternative benchmark to JPY LIBOR
rations to a new administrator – the on Risk-Free Reference Rates” iden- for both loans and bonds13.
Japanese Bankers Association TIBOR tified TONAR as the Japanese yen A “Task Force on Term Reference
Administration (JBATA) – to be in line RFR. The market volume of uncollate- Rates” was formed by the BoJ in July
with the IOSCO Principles. The JBATA ralised overnight call rate transactions 2019 to establish a framework for cal-
calculates the JBA TIBOR by using was $0.14 trillion in July 2018 12. culation and publication of Term Re-
banking quotes for five different matu- In August 2018, the Bank of Japan ference Rates based on the risk-free
rities (from one week up to 12 months). (BoJ) set up a “Cross-Industry Com- rate TONA14 . Several options have
mittee on Japanese Yen Interest Rate been proposed amongst which the
JBA TIBOR has been reformed in July Benchmarks” to improve the integrity development of a forward term rate
2017 to integrate and clarify the cal- and robustness of benchmarking based on futures (however the trading
culation and determination processes rates ahead of the discontinuation of of overnight call rate futures is current-
of reference banks’ submission rates. the JPY LIBOR (for cash products such ly suspended on the Tokyo financial
More than $35 trillion transactions as loans and bonds as derivatives Exchange), and an OIS rate (not inclu-
are referencing either JPY LIBOR or transactions are covered by the Inter- ding information derived from futures
TIBOR 11 . JPY LIBOR transactions co- national Swaps and Derivatives Asso- trades). Term rates are expected to
ver derivatives ($27.7 trillion), business ciation (ISDA)). A public consultation be developed and implemented by
loans ($1.3 trillion) and Bonds ($27.8 was held on the appropriate choice mid-2021 and temporary use of other
billion for floating rates only). Moreo- of alternative benchmarks to JPY LI- options will need to be explored until
ver, many derivatives contracts traded BOR. A term reference rate, which their development for the transition.
by financial institutions and institutio- would be calculated based on future
11
IBOR Global Benchmark Survey, 2018
12
Bank of Japan, October 2018
13
Public Consultation on Japanese Yen Interest Rate Benchmarks, BoJ, July 2019
14
Press Release, BoJ, 30 July 20191
1
In March 2020, the Financial Services
Agency (JFSA) and the BOJ commu-
nicated a summary of the results of a
survey conducted amongst Japanese
financial institutions on the use of LI-
BOR. The summary underlined that
most of the Japanese financial insti-
tutions surveyed are in the process
of preparing the business operations
to the LIBOR transition or have not
started yet. The JFSA and the BoJ
highlighted they will deliberate on the
need to set more specific core tar-
gets and conduct on-site monitoring,
considering the progress in financial
institutions’ preparations for LIBOR
transition15.
LIBOR DISCONTINUATION
JPY LIBOR: Conclude new contracts referencing
alternative benchmarks
Change language in existing contracts that refer to
LIBOR Multi-rate approach:
JPY LIBOR expected to be discontinued and
TONAR: The BOJ’s Committee will support the replaced by TONAR (and a long-term rate to be
development of Term Reference Rates by mid-2021 developed)
JPY TIBOR & Euroyen TIBOR: JBATA will, in Reformed TIBOR to continue alongside TONAR
cooperation with relevant authorities and
organizations, undertake efforts to raise awareness Euroyen TIBOR may be discontinued or integrated
of future retaining Japanese Yen TIBOR and to the JPY TIBOR to create a new benchmark
promote the use of Japanese Yen TIBOR in new (JBATA currently envisions a preparation period
transactions of approximately two years following the permanent
Euroyen TIBOR would not cease before 12-2021 cessation of LIBOR)
Before 2021 After
15
Survey Results on the Use of LIBOR and Main Actions Needed, FSA and BoJ, 13 March 20201
1
Australia.
Rate Description Challenges Current status
BBSW Denotes the cost for highly Some BBSW tenors The Royal Bank of Australia (RBA)
rated banks in Australia to issue are exhibiting a has encouraged market participants
short-term bank paper for each degree of illiquidity to adopt robust fallbacks for BBSW (such
monthly tenor between one as AONIA rate)
month and six months
RBA Cash Average interest rate on Overnight tenor only Use BBSW rate for longer tenors
Rate / unsecured overnight loans in the short term
between banks RBA has expressed support for efforts
AONIA
to develop a Term AONIA
The publication of AUD LIBOR has been strengthen the financial benchmarks derivatives market that allows users to
discontinued in 2013 and replaced by and ensure they were aligned with exchange cash flows linked to these
the BBSW. Thus, Australian market is the IOSCO Principles. To this end, benchmarks already exist. In June
founded on mainly two benchmarks: new methodologies have been 2019, the South Australian Government
BBSW and Cash Rate. implemented: BBSW is now largely Financing Authority (SAFA) issued the
The notional value of financial transaction based for the critical 3- first FRN referencing the AONIA18 .
contracts that reference BBSW rate and 6-month tenors and the cash rate In April 2020, regulators released
in Australia are estimated to A$18 is calculated directly using the actual feedback on Financial Institutions’
trillion (including derivatives, loans transactions in the cash market 17. Preparation for LIBOR Transition19,
and securities). BBSW is used as a As markets transition from referencing following the ‘Dear CEO’ letter sent
reference rate in around one-third of LIBOR to RFRs, there may be some by the Australian Securities and
non-government bonds denominated corresponding migration away from Investments Commission (ASIC) in
in Australian dollars, in almost all BBSW towards the cash rate. Even May 2019. Responses confirmed
asset-backed securities issued by though referencing a credit-based that the overall impact of LIBOR in
Australian securitization trusts, and in benchmark (i.e. BBSW) is relevant for Australia is substantial and indicated
some issuance by state and territory many financial products (e.g. corporate that due to liquidity concerns in
governments. The RBA cash rate is the loans), for some of them an RFR may alternative reference rates, entities
reference rate for around A$7 trillion be more appropriate (e.g. floating rate are continuing to write LIBOR-linked
in derivatives contracts. On average, notes (FRN) issued by governments). contracts. Regulators underlined they
around $4.2 billion in underlying The infrastructure is in place for have taken this into consideration in
volume is transacted in the interbank BBSW and the cash rate to coexist as the review process and acknowledge
overnight cash market per day 16. the key interest rate benchmarks for these external dependencies.
In 2018, the RBA launched programs to the Australian dollar and a functioning
LIBOR DISCONTINUATION
No change identified on the local rates: Regulators
encourage market participants to adopt standards of
‘best practice when transitioning away from LIBOR:
• transition program Multi-rate approach:
• client outreach and communication programmes BBSW to continue alongside AONIA, users can
• readiness of IT systems and infrastructure choose the benchmark that is most appropriate
• base and alternative scenarios planning for their circumstances
Before 2021 After
4
Results of Survey on Reform of Interest Rate Benchmarks for Q4 2019, HKMA, April 2020
5
Consultation conclusion on technical refinements to HKD Overnight Index Average (HONIA), TMA, December 2019
6
Circulars on interest rate benchmark reform, HKMA, March and October 20191
1
New Zealand.
Rate Description Challenges Current status
BKBM Short-term interest rate bench- The falling volumes traded Use an alternative rate (OCR) when
mark calculated on observed at the BKBM rate set have risk-free rates are more appropriate
transactions and reflecting the raised concerns that the
supply and demand for Bank benchmark rate may not
Bills (securities representing accurately represent the
short-term debt obligations of underlying market and
a bank with a maturity up to six thus is becoming less
months) reliable
OCR Interest rate set by N/A N/A
the Reserve Bank
New Zealand’s benchmark inte- warrant attention. Most notably, there is ticipants should adopt the new fall-
rest rates (i.e. BKBM) have always growing concern about the declining back provisions that will be provided
been based on actual transactions, volumes of bank bills being traded by the ISDA into their contracts refe-
consistent with the IOSCO principles. during the rate set. Between 2011 rencing BKBM rates. Furthermore, the
However, in 2015, it has been reformed and 2017, the total monthly volumes NZFMA has advised that it intends to
by the New Zealand Financial Markets of bank bills traded in the daily BKBM operate dual interest rate benchmarks,
Association (NZFMA) to further im- rate set have fallen from $25 billion to retaining BKBM and developing RFR.
prove its reliability and robustness. $3 billion20. Lower volumes indicate The new risk-free interest-rate bench-
Some of the main changes have been: that the market is less liquid, resulting marks will be calculated independently
to introduce a better governance sys- in more volatility in BKBM rates, doing to the BKBM fall-back benchmark rate,
tem (including the introduction of the harm to the rates’ representativity and with the NZFMA currently developing a
Benchmark Oversight Committee), to credibility. term structure methodology22.
widen the Trading Window from one to The Reserve Bank of New Zealand In January 2020, the OCR has been
two minutes, the creation of operation (RBNZ) underlined though that most selected by the NZFMA in conjunction
guidelines that include rules and penal- market participants think the BKBM re- with market participants to act as the
ties for participants, and the move from mains a good benchmark for the New risk-free fall-back benchmark interest
banks contributing rates directly to the Zealand environment and there is no rate for BKBM rates to comply with FSB
NZFMA to the capture by brokers. plan to discontinue this benchmark guidelines, and has been officially sup-
While significant improvements have soon21. ported by the RBNZ23.
been made to the BKBM rate capture However, at the beginning of the year,
process over time, some issues still the RBNZ highlighted that market par-
LIBOR DISCONTINUATION
No change identified on the local rates:
Regulatory authorities encourage market participants
who have contracts referencing LIBOR to transition to
alternative benchmark rates, and adopting more robust
fallback provisions in their contracts referencing IBORs Multi-rate approach:
(including BKBM rates) BKBM and OCR will continue to coexist
Before 2021 After
20
Reserve Bank of New Zealand, 2018
21
The Reserve Bank Bulletin, RBNZ, June 2017
22
Press Release, RBNZ, 28 January 2020
23
Press Release, RBNZ, 28 January 20201
1
Thailand.
Rate Description Challenges Current status
THBFIX The synthetic rate for deposits in LIBOR USD is Use of adjusted THBFIX (Using SOFR +
THB, which represents the effec- used for THBFIX Spread) following ISDA recommendation
tive cost of borrowing the THB calculation (compounded in arrears with a spread
synthetically by borrowing USD based on mean/median approach) as
for the same maturity and swap fallback
out the USD in return for THB
THOR A risk-free overnight rate N/A (New rate New rate published since April 1st 2020
based on repo markets that is published since April
expected to serve as alternative 1st, 2020)
reference rate for new Thai Baht
BIBOR The rates at which contributing Survey based Bank of Thailand (BOT) issued a robust
banks offer to lend THB funds to benchmark (not code of conduct for contributing banks
prime banks, in a reasonable mar- IOSCO compliant) as a guideline for rate submission
ket size, on an unsecured basis in methodology and procedure
the Bangkok interbank market
The end of LIBOR submission will
have a direct impact on the THBFIX,
LIBOR DISCONTINUATION
a transaction-based benchmark rate
implied from the USDTHB FX swap.
THBFIX: Renegotiate contract to
Impacts from the reform might be
include THBFIX Adjusted fallback
material for Thailand since THBFIX is
for legacy Include THBFIX
predominantly used as the reference
Adjusted fallback for new contract THBFIX: Enter into new contracts
rate in various products, including
referencing LIBOR Free rate
loans, and interest rate and currency
THOR: Encourage the issuance (i.e. THOR)
derivatives24.
of THOR linked product THBFIX probably going to get
BOT has pushed a market consulta-
(compounded in arrear) decommissioned after adoption
tion focusing on the Adjusted THBFIX
Start of OIS trading of THOR OIS
methodology in the case of LIBOR
cessation. The favored approach is to
BIBOR: Establishments of new THOR: Framework ready for
include an adjusted THBFIX as fall-
code of conduct, governance transition of legacy THBFIX
back using ISDA approach to replace
and process controlBIBOR contracts, to reduce outstanding
LIBOR (SOFR compounded in arrear
9-month ceased to be published THBFIX contracts both in cash
with a spread based on median/mean
due to lack of liquidity products and derivatives
approach)25.
In the long term, the favored RFR
would be THOR based on repo market
to serve as an alternative reference Before 2021 After
rate, that BOT started publishing in
April 2020. In addition, the global
transition pushed the BOT to reform
BIBOR with a new code of conduct
to match as much as possible IOSCO
principles26.
24
Official Website, BOT, May 2020
25
Responses to Market Participants’ Feedbacks on Adjusted THBFIX Consultation, BOT, May 2020
26
Annual Report 2014, BOT1
1
Philippines.
Rate Description Challenges Current status
PHIREF Implied Peso interest rate derived LIBOR USD is Not identified yet
from done deals in the interbank used for PHIREF
foreign exchange swap market. calculation
The PHIREF is used as the
benchmark for the reset value for
the peso floating leg of an Interest
Rate Swap
PHP Represents the benchmark LIBOR USD is used for Not identified yet
BVAL rates for the Philippine peso PHP BVAL calculation
in the government securities
market
The PHIBOR, which represents the fore swapping back to the Philippine
simple average of the interest rate of- Peso currency at the same tenor. So, if
fers submitted by participating banks US LIBOR is discontinued, it needs to
daily, has been ceased by the Bankers be replaced by an equivalent forward-
association of the Philippines (BAP) in looking term rate to prevent substan-
2013. Besides, the BAP replaced the tial alterations in the current value of
PDST Reference Rates and launched contracts linked to these rates.
in 2018 the PHP BVAL Reference In November 2018, BSP issued guide-
Rates, which represents the bench- lines on marking-to-market financial
mark rates for the Philippine peso in instruments 27, providing basis for
the government securities market. establishment of reliable and mar-
Today, the financial benchmark re- ket-based benchmarks and it is still
forms will affect three important planning to retain local benchmarks,
rates on the Filipino markets: the even though ARRs have not yet been
Bangko Sentral ng Pilipinas’ (BSP) identified28.
PHIREF (the interbank reference rate),
BVAL Reference Rates, and the US
dollar/Philippine peso FX rate.
Indeed, these rates are computed
using the US dollar LIBOR, as they indi-
cate the cost of borrowing in USD be-
LIBOR DISCONTINUATION
Approach not defined yet:
Local benchmarks should be retained, alongside
No change identified on the local rates alternative reference rates
Before end 2021 2021 After
27
Media Release, Bangko Sentral ng Pilipinas, 14 November 2018
28
Study On Implications of Financial Benchmark Reforms, Executives’ Meeting of East Asia Pacific Central Banks, February 20201
1
Indonesia.
Rate Description Challenges Current status
JIBOR Determined by Bank Indonesia (BI) Lack of credibility Overnight tenor replaced with IndONIA
based on the indicative offer rates Declarative Increased credibility by:
quoted by a contributor bank to - Underpinning quote rates to the greatest
BI within the submission window extent with transaction data
time. JIBOR is the average of un- - Good governance
secured lending indicative interest
rates, which is offered and aimed
for transactions by a contributor
bank to another for rupiah lending
in Indonesia for multiple tenors
IndONIA Based on the average interest N/A N/A
rate for unsecured overnight (New rate published
rupiah lending reported by all since 1 August 2018)
banks to BI, based on market
transactions
IndONIA is an index of interest rate for as a money market reference rate,
unsecured overnight interbank rupiah contributor banks have to quote rates
lending transactions, determined by by underpinning it to the greatest
the average interest rate for unsecured extent possible with transaction data
overnight rupiah lending based on in order to better reflect market rates
market transactions and reported by and the process of JIBOR quotations
all banks to Bank Indonesia. should be conducted with good
In 2019, IndONIA replaced the governance29.
JIBOR as an overnight interest rate
benchmark. BI no longer publishes
overnight JIBOR since the 2nd of
January 2019 and financial contracts
which used overnight JIBOR have
shifted to IndONIA as reference rate
for overnight tenor instead.
To increase the credibility of JIBOR
LIBOR DISCONTINUATION
JIBOR: Disappear on the long run as IndONIA
liquidity develops for longer tenors (1 week, 1 month,
3 months, 6 months and 12 months)
IndONIA: Develop liquidity in the longer tenors
JIBOR: Develop liquidity in the longer tenors currently covered by JIBOR and aligning interbank
currently covered by JIBOR rate with the policy rate
Before end 2021 2021 After
29
Official Website, BI2
2
Malaysia.
Rate Description Challenges Current status
KLIBOR Average interest rate at which Survey based and not Not identified yet
term deposits are offered transaction-based
between prime banks in the Doubts about the reliability
Malaysian wholesale money due to illiquidity of some
market or interbank market of the tenors (e.g. 3-month
futures contract)
The interbank offered rate, KLIBOR, is wi-
dely used in financial contracts, including
retail and commercial loans and interbank
transactions.
In 2017, the Malaysia’s Central Bank en-
hanced the standards of its interbank
benchmark rates to incorporate mea-
sures to further strengthen the integrity
of the KLIBOR reference rate. These mea-
sures have been introduced following a
review of the KLIBOR rate fixing process
and covers the governance, oversight, ac-
countability and transparency of the rates.
The aim is to align with international best
practices (IOSCO Principles), ensuring
that the rate setting process is under-
taken in a reliable and accurate manner
to ensure the integrity and credibility of
the rates being quoted by the KLIBOR
submitters30.
However, some liquidity concerns re-
main on the KLIBOR market, as illustrated
by the phase out of the nine-month tenure
in January 2018 by the Malaysia’s central
bank. This measure has been decided af-
ter industry’s feedback on the limited mar-
ket demand, relevancy and sufficiency of
transactional data to support the 9-month
KLIBOR rate setting process.31
LIBOR DISCONTINUATION
Approach not defined yet:
KLIBOR should still exist and serve as
No change identified before end 2021 the benchmark rate
Before end 2021 2021 After
30
KLIBOR Rate Setting Report, Bank Negara Malaysia, 27 December 2016
31
Press Release, Bank Negara Malaysia, 29 December 20162
2
South Korea.
Rate Description Challenges Current status
CD rate 91-day Certificate of Deposit (CD) Insufficient volume of Alternative RFR under development
issued by triple-A rated banks. CDs (91-day) issued
The Korea Financial Investment and in circulation. The
Association (KFIA) polls 10 local rate has long been
securities companies twice each reliant upon expert
day to calculate the rate judgement rather than
actual transactions
KORIBOR Average interest rate at which Interbank offered rate, Alternative RFR under development
term unsecured deposits are not based on actual
offered between prime banks transactions
in the Korean wholesale money
market or interbank market
In June 2019, the Financial Services for the other option (as Repo volume
Commission (FSC) and the Bank is a lot higher than call transactions) 33.
of Korea (BOK) jointly launched a The daily average balance of repo
taskforce to select an alternative to transactions hit KRW89.6 trillion in the
the current standard, the KORIBOR, first half of 201934, up from KRW51.9
which is based on the declining local trillion in 2016. Over the same pe-
certificate of deposit market. The aim riod, we observe a significant drop
is to develop a new benchmark by in overnight call transactions, with
March 2021. Meanwhile, the taskforce daily average balances falling from
will also come up with measures to KRW15.8 trillion to KRW10.6 trillion35.
boost the issuance of CDs and im- Industry groups also highlighted other
prove the current method of calcula- advantages of a repo rate, such as a
ting CD rates32. lower counterparty risk compared to
The taskforce is considering two a call rate, especially if only transac-
options for the new risk-free rate: a tions backed by government bonds
benchmark based on repo transac- are considered.
tions and an RFR based on short-term As of now, there is no immediate
unsecured loans (call transactions). plans to discontinue the 91-day CD
Earlier this year, dealers in South Korea rate, and market players say they
have expressed their preference for a will use the alternative RFR once it is
next-day repo rate considering decli- available36.
ning volumes in the underlying market
LIBOR DISCONTINUATION
Approach not defined yet: Existing rates should
No change identified before end 2021 still exist alongside a risk-free rate
Before end 2021 2021 After
32
Press Release, FSC, 17 June 2019
33
Risk.net, 24 February 2020
34
Korea Securities Depository
35
Bank of Korea
36
Risk.net, 24 February 20202
2
Benchmarking
study findings.
This section of the report explores the key findings of the study
based on the discussions with financial institutions. It covers the
5 key areas of the transition including transition organization
and governance, regulatory initiatives and litigation, operations
and systems, risk management and modelling and contract
inventory and remediation. The study aims to offer insights into
how different firms surveyed in the region are preparing for the
transitions and tackling the challenges in APAC.
To participate in the study and access the detailed survey results, please contact us2
2
Planning the next 12 months.
Firms in the region have taken different approaches to prepare APAC IBOR transitions with some not started their prepared-
ness planning. Keeping the next 12 months on track will be crucial as the IBOR transition deadlines get closer and regulatory
guidelines become clearer. It is vital that firms continue to stay focused in preparing for the transitions.
Sell-side Buy-side
Stay Current on Regulatory Developments
• Engage with regulators and industry groups to
1 Establish Formal Transition Governance
• Establish a programme governance framework to
understand transition guidelines and best practices provide oversight across impacted functions and
as requirements become clearer in the region business lines
• Maintain an agile delivery plan to meet evolving • Engage with all impacted stakeholders to align on
regulatory requirements and challenges in the roles and responsibilities as well as accountability
region • Define clear milestones and work packages to
drive deliverables
Kick-off Contract Remediation
• Establish the appropriate resource model at
2 Initiate Impact Assessment
• Conduct a front to back assessment to identify
product level to manage contract remediation taking business areas and support functions impacted by the
into account local specificities and cost vs volume transition and to quantity the magnitude of the impact
• Identify local requirements and assess feasibility • Define target operating model and business strategy
of using AI/ machine learning tools to accelerate • Develop remediation and transition plan to
remediation process mitigate transition risks, such as conduct risks
Drive Client Communications
• Drive execution of client communication strategy and
3 Develop Communication Strategy
• Establish internal and external communications
continue to monitor its effectiveness in meeting clients’ strategy, including client/ product categorisation,
needs and reducing conduct and litigation risks outreach prioritisation communication timelines
• Train internal resources to understand the various • Ensure conduct risks are thoroughly considered
transitions in the region to begin detailed client and mitigated
discussions • Align communications plan with key transition
• Begin Initiation of negotiation and remediation of activities, such as contract remediationdiscussions
contracts with clients • Begin Initiation of negotiation and remediation of
contracts with clients
Get Operations and Technology Ready 4 Ongoing Transition Monitoring
• Identify and mitigate key risks arising from • Drive internal operational and technology
non-preparedness of clients and non-market preparedness to meet IBOR transition deadlines
participants, such as clearers, custodians • Monitor regulatory development and industry
• Identify key dependencies on vendors and guidelines to ensure external requirements are met
establish an engagement strategy with vendors
to close out risks and issues. Develop a potential
workaround plandiscussions
• Begin Initiation of negotiation and remediation of
contracts with clients2
2
How Sia Partners can help.
“Sia Partners stands ready to assist clients with a comprehensive impact assessment including a platform review,
data reference analysis, and systems traceability.”
Impact Analysis. Program Management
Cognitive and process driven solutions to review
Office and Support.
current state to determine business/functions,
Program oversight of the entire project as well as
products, and size of assets that will be affected
additional resources to support key transition ini-
by the transformation to a new reference rate. Sys-
tiatives. This includes status reporting, leveraging
tems traceability exercise to determine scope of
existing project governance structure (steering
remediation required (i.e. Interest Rate Risk, Global
committee and working groups), issue manage-
Risk Management, Market Data, and other Interest
ment, and escalation. Additionally, this will include
Adjustments).
participation in industry working groups so we can
capture and deliver real-time information to you as
it becomes available.
Using automation Support Operational
techniques to accelerate and System Updates.
your LIBOR transition. Management of required updates/ enhancements
to operational and risk processes and systems in
Labor-heavy areas of the transition will need to
order to process transactions tied to ARRs and fall-
look at innovative ways to approach their respec-
backs. Additionally, these required updates could
tive roadmaps. Contract remediation supported by
present extensive testing and validation efforts
Artificial Intelligence, Smart Workflow via Robotic
post update.
Process Automation (RPA) will be paramount to
effectively approach these workstreams.2
2
What to Do to Prepare for the
IBOR Transition.
High level approach.
1 2 3 4
Analyse: Design: Plan: Execute:
• Independent assessment • Target operating • Implementation planning • Stakeholder coordination
• Centralisation of internal model design • Budgeting • Cross functional delivery
documentation • Gap analysis • Project governance management
• Articulation of strategic • Business cases structuring • Project tracking
objectives and reporting
Project Support & Delivery.
Customised approach & project governance tailored Early SMEs & regulatory engagement
to your organisation and to the monetary indexes
specific requirements (incl. impact analysis on IT tools Anticipation of sign-off requirements
& processes)
Cross-functional project governance
Clear strategic prioritisation at the onset of the project
Sia Partners to be Your Trusted Advisor.
Experience in
✓ Combined expertise ✓
as consultants involved High quality
✓
facilitating similar have specialised deliverables supported
assessment projects skillsets in Target by multiple projects
across the financial Operating Model delivered in the
services sector Definition and IBOR relevant space
Transition• Abou Dabi • Frankf ur t • Montreal
• Amsterdam • G reater Bay • New York
• Baltimore Area • Panama*
• Br ussels • Hamburg • Paris
• Casablanca • Hong Kong • Riyad
• Charlot te • Houston • Rome
• Chicago • London • Seat tle
• Denver • Luxembourg • Singapore
• Doha • Lyon • Tok yo
• Dubai • Milan • Toronto
*Sia Partners Panama, a Sia Partners member firm
About
Sia Partners.
Sia Partners is a next generation consulting firm focused on delivering superior
value and tangible results to its clients as they navigate the digital revolution.
With over 1,650 consultants in 17 countries, we will generate an annual turnover
of USD 300 million for the current fiscal year. Our global footprint and our
expertise in more than 30 sectors and services allow us to enhance our clients’
businesses worldwide. We guide their projects and initiatives in strategy,
business transformation, IT & digital strategy, and Data Science. As the pioneer
of Consulting 4.0, we develop consulting bots and integrate AI in our solutions.
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