HKMA to monitor industry’s progress in preparing for transition from IBORs to ARRs

In a circular issued to authorised institutions (AIs) on 23 October 2019, the Hong Kong Monetary Authority (HKMA) indicated that it will conduct a regular survey to collect information on AIs’ exposures referencing interbank offered rates (IBORs) and their progress in preparing for transition to alternative reference rates (ARRs). Depending on the survey results, the HKMA will take appropriate follow up action.

The HKMA noted that since its circular of 5 March 2019, international authorities, standard-setting bodies and industry organisations had made significant progress in laying down the critical elements for the transition from IBORs to ARRs, such as development of term rates for ARRs, spread adjustments to address the difference between the two rates, and fall-back language for financial contracts referencing IBORs to cater for IBOR discontinuation.

Although there is currently no plan to discontinue the Hong Kong Inter-bank Offered Rate, the Treasury Markets Association (TMA) has proposed to adopt the Hong Kong Dollar Overnight Index Average (HONIA) as the ARR and is considering feedback on its consultation regarding proposed technical refinements to the HONIA. Such technical refinements relate to data source, reporting window and publication time.

The HKMA expects AIs to take into account both the international and local developments on benchmark reform in their preparation for transition. The TMA's working group on ARRs has held regular meetings to discuss issues arising from the reform and to assist local market participants.

For further information, please refer to our e-bulletin of 20 February 2019 regarding risks and implications of benchmark reform and our e-bulletin of 2 October 2019 regarding a study by the Executives' Meeting of East Asia-Pacific Central Banks on implications of benchmark reform across the East Asia and Pacific region.