The global financial industry is currently undergoing unprecedented transformation. Firm-specific and industry-wide efforts across the globe are taking pace to address the transition from London Interbank Offered Rate (LIBOR) to alternative rates by end of 2021.
In July 2017, UK’s Financial Conduct Authority (FCA) CEO Andrew Bailey made a speech on the “Future of LIBOR” alerting the markets on the viability of the LIBOR. By end of 2021, FCA will no longer compel panel banks to make submission for the LIBOR and may lead to the discontinuity of the world’s most widely-used benchmark rate.
Industry working groups across the world have since accelerated their plans and identified alternative risk-free rates (ARRs) as a replacement benchmark for IBORs. At the same time, regulators are increasing pressure for banks to actively reduce their exposure to IBOR and accelerate their transition towards ARRs products.
Asset and wealth management has been in a period of upheaval since the Global Financial Crisis (GFC) that’s intensifying. The industry is rapidly evolving at an exponential rate and will continue to be reinvented. There is a great opportunity for growth but there will likewise be major changes to fees, products, distribution, regulation, technology and people skill.
On 10 July 2020, the Hong Kong Monetary Authority (HKMA) issued a circular to share the latest results of the Survey on Reform of Interest Rate Benchmarks and the key milestones that authorised institutions (AIs) should endeavour to achieve in the transition to alternative reference rates (ARRs).
Similar to the timelines announced by ARRC in the US and the Sterling Working Group in the UK, the target milestones outlined by the HKMA represent a tangible set of transition guidance for Hong Kong, not just for AIs but for all market participants including investors, third-party service providers and corporates. The milestones also provide a yardstick for the HKMA to measure progress and firms should expect they will be held accountable.
Identification and evaluation of key risks arising from the reform under different scenarios
The transition from LIBOR is market, not regulator driven and institutions and territories are preparing at different rates. PwC’s LIBOR and reference rate reform specialists in territories throughout the globe can help you assess, prepare for, and execute on the transition. We work with you across the entire lifecycle of the transition, including:
Are you interested in evaluating the impact of LIBOR and reference rate reform on your business? Contact us today!
Mainland China and Hong Kong Corporate Treasury Leader, PwC Hong Kong
Tel: + 2289 2313