By Alun John
HONG KONG, Sept 16 (Reuters) – Asset managers and companies must do more to prepare for the end of the tarnished Libor benchmark, Hong Kong’s banking regulator said on Wednesday, describing them as lagging behind the banking sector.
Ditching Libor, or the London Interbank Offered Rate, the price reference still embedded in derivatives contracts and loans worth $400 trillion globally, is one of the biggest challenges markets have faced in decades.
Despite the impact of the new coronavirus pandemic, regulators globally have told banks that they must stop using Libor and shift to alternative rates calculated by central banks by the end of 2021.
After this date the benchmark is set to disappear, leaving the value of any remaining contracts pegged to the benchmark uncertain and open to legal challenges.
“While we are seeing more steam in the banking sector’s effort in preparing for the transition, some market segments are still lagging behind. … A smooth transition requires adequate preparation not only by banks but also their clients and counterparties such as corporations and buyside firms,” said Howard Lee, deputy chief executive of the Hong Kong Monetary Authority, the financial hub’s central bank and banking regulator.
“There is still a big gap among these benchmark users on the awareness of and readiness for the transition.”
Lee was speaking at an event hosted by the International Swaps and Derivatives Association, an industry body.
The HKMA has told banks in Hong Kong they should be able to offer financial products using Libor alternatives by 1 Janury 2021, and stop issuing products which use Libor and will mature after 2021, by 30 June 2021.
Lee also said the HKMA was considering following the U.K.’s example and using legislation to solve some tough “legacy problems” – products referencing Libor which will last past 2021, and where the parties have been unable to negotiate alternative arrangements.
(Reporting by Alun John, Editing by William Maclean)
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