Banks to submit LIBOR reports until 2023 — BSP

Published October 28, 2021, 5:06 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) has directed all banks and their subsidiaries to submit quarterly reports of their remaining London Inter-Bank Offered Rate or LIBOR-related exposures until end-2023.

BSP Deputy Governor Chuchi G. Fonacier, who signed the memo (Memorandum No. M-2021-058) on Tuesday, Oct. 26, said banks should take note of the new date of LIBOR cessation and to begin the reporting by Dec. 31, 2021.

BSP Deputy Governor Chuchi G. Fonacier

Fonacier said the reporting is part of banks’ LIBOR transition plan based on previous memos issued.

“The proper identification of exposures is a crucial step in ensuring that the cessation of LIBOR does not disrupt a bank’s operations and the efficient provision of services to its clients and other market counterparties,” she said in the memo.

She also said that banks should mind the “accuracy and comprehensiveness” of these reports which will be “viewed as a reflection of the quality of its LIBOR transition arrangements and shall factor into the BSP’s assessments of its risk management system.”

The BSP said banks “should be working toward proactively remediating LIBOR-referencing contracts and moving new business to robust alternative reference rates.”

“Banks are reminded of their crucial responsibility for client education on the transition. Communication and outreach initiatives shall be compliant with the BSP’s consumer protection framework,” said Fonacier.

The memo also reminded banks that system and operational enhancements due to new data and valuation requirements arising from the shift from LIBOR to alternative rates should be implemented early “to ensure that technical issues will not adversely impact day-to-day operations.”

“A bank’s effective management of the risk arising from LIBOR cessation necessarily involves strategies for actively reducing reliance on the benchmark sufficiently in advance of its discontinuation,” said Fonacier.

LIBOR is used by local banks as a reference rate for its foreign currency-denominated transactions such as corporate and consumer loans, bank deposits, fixed income securities, interest rate swaps and cross currency swaps.

Last month, BSP Governor Benjamin E. Diokno encouraged banks to “proactively” transition all of LIBOR-related exposures to alternate or replacement reference rates before it begins its cessation process in January 2022.

LIBOR, the rate that banks in London offer Eurodollars in the placement market, will no longer be in use after December 31 this year, as announced by the United Kingdom’s Financial Conduct Authority in 2017. The allegations of LIBOR manipulation since 2005 has led to investigations on panel banks and in 2012, British giant Barclays Bank was the first to admit of LIBOR manipulation.

The BSP will leave it to the banks to choose their replacement rate but do it as soon possible since a delay or inability to shift to alternate rates will deprive banks and their clients of repricing and valuing their financial exposures once LIBOR ceases to exist by mid-2023.

 
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