On 19 August 2021, the Hong Kong Monetary Authority (“HKMA”) issued Circular B1/15C to all authorised institutions (“AIs”) with the following updates on recent developments on the reform of interest rate benchmarks.


HKMA understood from its ongoing industry outreach that some corporates were hesitant to migrate from LIBOR to SOFR because of the lack of a commonly accepted term structure for SOFR. Following the US Alternative Reference Rates Committee (“ARRC”) announcement on 29 July 2021 formally recommending the CME’s Term SOFR for adoption by market participants, HKMA now expects AIs to step up their efforts to encourage customers to transition to SOFR.

New USD LIBOR-linked contacts after 2021

Like its banking regulator counterparts around the world, HKMA has required AIs to cease entering into new LIBOR-linked contracts after 2021. That said, certain USD LIBOR settings will continue to be published for an additional 18 months after 2021. AIs may need to issue new USD LIBOR-linked contracts under certain exceptional circumstances until June 2023 in order to manage (or help customers manage) risks associated with pre-existing USD LIBOR-linked contracts. Banking regulators in several jurisdictions have specified the exceptional circumstances under which their regulated banks are permitted to issue new USD LIBOR-linked contracts after 2021. Having consulted the TMA and other relevant industry bodies, HKMA sets out the circumstances under which AIs are permitted to issue new USD LIBOR-linked contracts after 2021:

  1. transactions that reduce or hedge an AI’s or its clients’ USD LIBOR exposures connected with contracts entered into before 1 January 2022;
  2. market making in support of client activities related to USD LIBOR transactions executed before 1 January 2022;
  3. novations of USD LIBOR transactions executed before 1 January 2022; and
  4. transactions executed for purposes of required participation in a central counterparty auction procedure in the case of a member default, including transactions to hedge the resulting USD LIBOR exposure.

If AIs come across other exceptional circumstances that necessitate the issuance of new USD LIBOR-linked contracts after 2021 for risk management purposes, they should first discuss with HKMA how these cases should be handled. HKMA also will continue to monitor market developments and update the list of exceptional circumstances as appropriate.

Stepping up surveillance of AI readiness

HKMA will step up its surveillance of AIs’ preparations from now on until the end of 2021 to ensure a smooth transition away from LIBOR. HKMA will increase the reporting frequency of the Survey on Reform of Interest Rate Benchmarks from quarterly to monthly during 4Q 2021, starting from the position of end-September 2021. To reduce the reporting burden on AIs, HKMA will simplify the reporting template and distribute it to AIs shortly.

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