Interbank benchmarks, Brexit and conduct risk in Asia

The week on, May 12-18, 2018

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Swaps users to get three choices for synthetic Libor

Consultation due next month as industry tries to avoid big losses on benchmark’s death

Local laws may save legacy swaps from Brexit migration

Exemptions from local authorisation may open a backdoor to servicing UK-EU contracts after Brexit

Asia-Pacific banks grapple with conduct risk rules

Australia, Hong Kong regimes lead in developing conduct risk guidelines; Singapore lags behind


COMMENTARY: Unclear road ahead for Libor replacement

Swaps users will have to tolerate uncertainty for a little longer – the International Swaps and Derivatives Association consultation due next month on how to construct a synthetic replacement for Libor, known as the fallback rate, still has no clear front-runner. The industry will need a fallback, as despite the urging of central banks such as the Reserve Bank of Australia, there will still be large volumes of Libor-linked swaps to settle once the benchmark finally dies in 2021.

Even if one emerges from the consultation process, finalising it could take time – there are three possibilities, each with their supporters. It is to be hoped – though it’s not explicitly part of the discussion so far – that one of the trade body’s concerns will be making the replacement proof against the kind of manipulation that destroyed Libor’s reputation. The consultation will offer a choice between the spot spread between the risk-free rate and the interbank offered rate, the long-term average spread (over a month or so) and a spread derived from the forward rate.

And there’s even the possibility that at least one member of the family could survive past 2021. The European Central Bank’s market operations division has hinted that Euribor could stay if planned reforms are seen to succeed – a move that runs very much against the grain from the point of view of the UK and US authorities pushing the transition to risk-free rates that don’t depend on untrustworthy bank submissions. And Australia is keeping its own Libor-like benchmark rate rather than make the jump to a risk-free rate.

The Libor question will be with us for some years yet.



ABN Amro absorbed impairment charges on loans of €208 million ($249 million) in the first quarter of 2018, following the adoption of the IFRS 9 accounting standard.



“While [Citi’s] system identified individual instances of suspicious activity, it did not follow up on the majority of those red flags. That stands out to me as a really important issue in these cases, the role of technology in enforcement and compliance. To identify infractions by means of technology but not to follow up on them with human interaction, that raises a lot of concerns” – Rostin Behnam, CFTC

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