Welcome to KPMG's first issue of our monthly LIBOR newsletter in which we provide updates on LIBOR and other benchmark interest rate developments that directly impact banks and consider the potential implications of the related regulatory requirements.

Regulatory Updates

1.  HKMA circular on reform of interest rate benchmarks

The Hong Kong Monetary Authority (HKMA) issued a circular on 5 March 2019 to request Authorised Institutions to make preparations for the transition associated with the interest rate benchmark reform being pursued under the auspices of the Financial Stability Board (FSB). The preparatory work should cover: (i) quantification and monitoring of affected exposures regularly, (ii) identification and evaluation of key risks arising from the reform under different scenarios, (iii) formulating an action plan to prudently manage the risks identified, and (iv) monitoring closely the developments of the benchmark reform both in Hong Kong and internationally, and updating the scenarios and action plan as appropriate.

Please also refer to our client alert on the HKMA circular here.

5 March 2019 HKMA


2.  FSB letter to ISDA on derivatives contractual robustness to risks of interest rate determination

The Co-chairs of the FSB's Official Sector Steering Group wrote an open letter to the International Swaps and Derivatives Association (ISDA) to encourage ISD's work on consulting on options for adopting more robust fall-back language for derivatives referencing key Interbank Offered Rates (IBORs). The FSB also raised three important issues that it believes ISDA is going to address: (i) the addition of trigger events; (ii) the timing of an ISDA consultation on USD LIBOR and certain other IBOR; and (iii) the governance and transparency of ISDA as it makes decisions.

12 March 2019 FSB


3.  RBA Assistant Governor speech on bonds and benchmarks

Mr. Christopher Kent, Assistant Governor of the Reserve Bank of Australia (RBA), provided a brief update on the work underway to strengthen interest rate benchmarks, both internationally and in Australia during the KangaNews DCM Summit on 19 March 2019. One of the key areas highlighted was BBSW rates (interest rate benchmarks for the Australian dollar) which lots of work has been done to ensure the rates remain robust. Mr. Kent warned that the bank bill market may not always be large enough to sustain BBSW rates as viable benchmarks. Therefore, RBA has been working with ISDA to strengthen the contractual fall-backs for BBSW at the same time as LIBOR and this will involve using the cash rate as the fall-back with spread adjustment.

19 March 2019 RBA

Industry Update

1.  TMA to hold consultation on interest rate benchmarks in Hong Kong

The HKMA announced in a briefing to the Legislative Council Panel on Financial Affairs that the Treasury Markets Association (TMA) will hold a consultation in the first quarter of 2019 on alternative reference rates. Previously TMA members discussed the issue and proposed adopting the HKD Overnight Index Average (HONIA) as the alternative reference rate.

19 February 2019 HKMA

KPMG Publications

1.  IBOR reform – Possible changes to support hedge accounting

As part of the first phase of its project on IBOR Reform and its Effects on Financial Reporting, the International Accounting Standards Board (IASB) tentatively decided at its February meeting to propose that the hedge accounting requirements of IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement be amended in response to the impacts of IBOR reform.

18 March 2019 KPMG


2.  Update on LIBOR reform – HKMA Circular

Following the circular from the HKMA on interest rate benchmarks reform, KPMG explores the preparatory work the HKMA recommended and suggests actions to be taken by Authorized Institutions in Hong Kong.

25 March 2019 KPMG

Upcoming Event

Breakfast briefing at The British Chamber of Commerce in Hong Kong

Marie Gervacio, a partner of KPMG’s Risk Consulting practice, will be speaking at the BritCham for the topic of “Managing the Impact of Interest Rate Benchmarks Reforms” on 17 April 2019. Marie will cover the following topics: (i) Market developments on UK/EU/US risk-free rates (RFRs); (ii) What the HKMA Circular means for Authorised Institutions in Hong Kong; (iii) Next steps to prepare for business and operational impact.

25 March 2019 BritCham

Contact Us

Simon Topping
Regulatory Advisory
KPMG China
Tom Jenkins
Partner, Head of Financial
Risk Management
KPMG China
Michael Monteforte
Financial Risk Management
KPMG China
Marie Gervacio
Partner, Financial Risk Management
KPMG China
Edwin Hui
IT Advisory
KPMG China
Desmond Yu
Associate Director,
Financial Risk Management
KPMG China