ARRs and IBORs are distinctly different. xmp.did:ff43c7cd-4032-c243-8700-67644601c42f 16 In addition to IBORs, other interest rate benchmarks are being looked at. DTTL and Deloitte NSE LLP do not provide services to clients. Reforms to HONIA are currently being considered. Therefore, the imminent change to LIBOR and its replacement with overnight rates will be far-reaching. The transition from interbank offered rates (IBORs) to new alternative risk-free rates (RFRs) marks a historic turning point in financial markets. pwc-ch:industries/financial Transition has increased and work has been done to mitigate known risks through the development of fallback language and alternate RFR products. However, Andrew Bailey, chief executive officer of the Financial Conduct Authority said at a conference held on 15 July 2019 that although a “forward-looking term version of SONIA should be useful to some niche users in cash markets, […] the use of these forward-looking term rates is meant to be limited. The table above is not exhaustive. It is based on quotations received from LIBOR panel banks, which are a group of banks who provide information to IBA as to the amount it would cost them to borrow from other banks so that an average can be calculated and published. . IBOR Transition UK Government opens the door to ... that a methodology change to LIBOR may not be feasible or a complete solution for all legacy contracts and an active transition of such contracts away from LIBOR remains the only route that will provide contractual certainty and control of economic outcomes. <> Please refer to your advisors for specific advice. Phase 1 amended specific hedge accounting requirements where uncertainty could arise in the run-up to transition; Phase 2 addressed potential financial reporting issues that may arise when IBORs are either reformed or replaced. A lack of preparation could trigger market volatility. That reality could result in a number of challenges in cross-currency swap markets. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. In the meantime, if you require any further information, please contact your usual Relationship Manager. In July 2017, the Chief Executive of the UK Financial Conduct Authority (FCA) announced that firms should discontinue the use of the London Interbank Offered Rate (LIBOR) in favour of overnight risk-free rates (RFRs). Helpsheets. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. xmp.did:ff43c7cd-4032-c243-8700-67644601c42f These changes may impact the Hang Seng products and services you currently use and those we provide in the future. €STR (Euro Short-Term Rate) will be published from 2 October 2019. SONIA, TONA and €STR) and repurchase or “repo” transactions for secured RFRs (i.e. This information is from the Swiss National Working Group (NWG) which is the key forum to foster the transition to SARON and to discuss the latest international developments. To support our clients in this endeavour, Deloitte has established a team of experts in Switzerland, which brings strong expertise in areas such as risk management, regulatory change, tax and legal. Details of the Protocol and a list of frequently asked questions can be found at the following links: Clients should be carefully reviewing their derivatives documentation and be coordinating with their trading counterparties to consider whether to adhere to the Protocol or, alternatively, whether to amend documentation on a bilateral basis to incorporate the new fallbacks. SOFR and SARON). To help you prepare for the new post-IBOR world, we have identified several steps that can smooth the IBOR transition. Many other countries are planning to do the same. Some regulators, benchmark administrators, and market participants have hinted at the possibility of IBOR being available for selected currencies and tenors beyond 2021. Certain currencies also use specific benchmarks such as EURIBOR and EONIA for EUR, the Tokyo Interbank Offered Rate (TIBOR) for JPY, the Hong Kong Interbank Offered Rate (HIBOR) for Hong Kong Dollar and the Singapore Interbank Offered Rate (SIBOR) for Singapore Dollar. We also play a leading role in supporting regulators, trade associations and others to increase awareness and education. EY | Assurance | Consulting | Strategy and Transactions | Tax. This website does not establish an attorney-client relationship. Swiss banks have already gained some experience in this regard, with the transition from the Tomorrow/Next Indexed Swaps (TOIS) fixing to the Swiss Average Rate Overnight (SARON); but the replacement of CHF LIBOR will be far more complex due to its importance as the basis for pricing Swiss loans. If a bank comes up with its own approach for redefining the spread for its variable-rate instruments, the counterparties may find themselves on the losing end of the transition – which could lead to legal challenges and reputation damage. Unlike derivatives, which will be addressed in bulk through updates to standard contract language (protocol), cash products for corporate and retail end-users have limited standardization, or protocol. There may be other benchmarks which are either discontinued or where changes have or will be made to their methodology. 2019-07-08T10:24:48.000+02:00 Working Groups at national and international levels have been set-up to define the alternative RFRs, to outline challenges and roadmaps around the proposed transition to market participants. The lack of definitive regulatory guidance on the IBOR transition may slow down progress as banks deem “wait and watch” to be the most prudent strategy. The fixings are determined by averaging the middle quotes after excluding the highest three quotes and lowest three quotes received from the reference banks. While many firms are concerned about IBOR exposure, few have begun planning for 2021. You should contact your professional advisors on the possible impact of the IBOR reforms on the financial products and services you use or may use in the future. IBOR Transition Webinar, ... IBOR Transition: Enhancing EURIBOR and LIBOR. ICAEW's Financial Services Faculty highlights 10 questions corporates can ask to build a robust conversation around how your firm is addressing readiness for LIBOR transition. Select examples of benchmarks which are either being replaced or benchmarks where changes either have or will be made to their methodology (notably the way in which they are determined) are set out in the table below. Although registered and administered in the UK, LIBOR is a benchmark that underpins contracts affecting banks, asset managers, insurers and corporates globally. How Biden’s declared victory will affect tax and trade globally, How to harness the power of trust and data, EY EMEIA Financial Services Insurance Strategy Leader, EY Global Financial Services IBOR Lead. 110 0 obj EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. 56 0 obj These impacts include possible changes to contractual documentation, adaption of operational processes/IT systems, changes to the value of products or the possibility of products no longer serving the purpose for which they were intended. This wait-and-see approach carries huge risk – because how well firms navigate this milestone will have a lot to do with their level of upfront preparation. uuid:97f9c563-9f5b-45b8-92ff-fde4ad60b220 The extensive use of IBORs in financial markets will make the transition to ARR a significant enterprise-wide transformation. <>stream 114 0 obj ISDA will launch the IBOR Fallbacks Supplement to the 2006 ISDA Definitions (the “Supplement”) and the ISDA 2020 IBOR Fallbacks Protocol (the “Protocol”) on October 23, 2020. In 2014, due to IBOR’s sustainability concerns in the unsecured banking market, the Financial Stability Board (FSB) opined to look into risk-free reference rates (RFRs) as alternatives to IBORs. We will continuously publish IBOR specific blogs, sharing our experiences, knowledge and insights on implementation challenges as well as keeping our readers up-to-date with regards to changes in the regulatory environment. As the journey to transition away from the London Interbank Offered Rate (LIBOR) continues to move forward, supervisors across jurisdictions have started approaching institutions to gain insights into their operational readiness. Join our next webinar! In Switzerland, the National Working Group on Swiss Franc Reference Rates foresees the Swiss Average Rate Overnight (SARON) as the Swiss solution. Interest rate benchmarks including, among others, the London Interbank Offered Rate (LIBOR), the Euro Interbank Offered Rate (EURIBOR), the Euro Overnight Index Average (EONIA) and certain other Interbank Offered Rates (IBORs) are being reformed.The UK Financial Conduct Authority (FCA) has stated that after 2021 it will no longer compel banks to submit rates used for the calculation of LIBOR. The transition to ARR may require renegotiating the spread due to the differences between LIBOR and ARR, such as credit and term premiums. Hang Seng is conducting due diligence to review and confirm how LIBOR and other IBORs are used in Hang Seng products or services. 2 The ARRC (Alternative Reference Rates Committee) anticipates SOFR replacing the Effective Federal Funds Rate (EFFR) as the rate used for discounting and Price Alignment Interest (PAI) in the cleared context beginning Q1 2020. The Financial Accounting Standards Board (FASB) recently issued guidance on derivative and hedging transactions, and there are proposed amendments to ASC 815 that will add SOFR as a benchmark; similar guidance will be required in other jurisdictions. Hang Seng is monitoring this situation and, where required, will provide clients with further information. Top things businesses need to know to not be caught short. Hong Kong Interbank Offered Rates (HIBOR) are the rates of interest for Hong Kong Dollar deposits for the relevant period calculated by HKAB each day (except Saturdays and general holidays) and displayed at 11:15 a.m. on the website of HKAB. 109 0 obj In connection with the transition away from US dollar LIBOR, a working group in the United States that consists of both private and public sector entities (the Alternative Reference Rates Committee or ARRC) is currently planning a transition to SOFR. Regulators globally have emphasised that it is now time for market participants to start transitioning from the use of IBORs to alternative benchmark rates. However, should more HONIA-based products be introduced in the market, it would help reduce the market impact in case HIBOR has to be discontinued one day owing to changes in market circumstances. The RFRs under consideration are overnight near risk free rates while IBORs incorporate both a term structure and bank credit risk. LIBOR will no longer be allowed as a reference rate in loan agreements or derivatives from 2021 and its use is rapidly diminishing. This has been further placed under the spotlight with the letters written to CEO’s of major banks and insurers as of 19 September 2018 by the FCA and Prudential Regulation Authority (PRA) requesting the submission of a board approved summary of the transition plan by 14 December 2018.

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