The Bangko Sentral ng Pilipinas (BSP) encourages banks to proactively transition their transactions to alternative reference rates well ahead of the termination of the London Inter-Bank Offered Rate (LIBOR) as a benchmark rate.
LIBOR, an interest rate benchmark used in a wide range of financial transactions, will enter a phased process of cessation beginning 1 January 2022.
“As the discontinuation of LIBOR as reference rate approaches, the BSP will continue to engage the industry and individual banks to facilitate a smooth transition,” said BSP Governor Benjamin E. Diokno.
The transition away from LIBOR, initially announced in 2017, reached a crucial stage with the March 2021 announcement by the United Kingdom’s Financial Conduct Authority of the formal timeline for the discontinuation of the benchmark.
Absent the implementation of an orderly transition plan, the ending of LIBOR has the potential to give rise to significant operational risks for banks.
In this regard, the BSP issued Memorandum No. M-2020-083 dated 17 November 2020 on the Transition from the LIBOR and Reporting Requirements on LIBOR-Related Exposures.
The memorandum highlights the BSP’s expectation for supervised entities to implement viable transition plans to ensure that the expected end of LIBOR does not disrupt their operations and the efficient provision of services to clients and other market counterparties.
Banks must ensure overall operational readiness for the adoption of alternative reference rates by putting necessary systems and infrastructure in place, and establishing appropriate contractual arrangements.
The BSP has also required all universal and commercial banks and their subsidiary banks to submit quarterly reports on their LIBOR-related exposures.
The reporting requirement is intended to facilitate the identification of transactions referenced to the benchmark. The report will likewise aid the BSP in monitoring banks’ progress in actively winding down their LIBOR exposures. (BSP)-rir
