BANGKO Sentral ng Pilipinas (BSP) Governor Benjamin Diokno on Thursday urged banks to forge “operational readiness” for the adoption of alternative reference rates as the discontinuation of the London Interbank Offered Rate (Libor) approaches.
Diokno asked banks to “proactively transition their transactions to alternative reference rates” well ahead of the termination of the international benchmark rate.
Libor is an interest rate benchmark used in a wide range of financial transactions. It will enter a phased process of cessation beginning January 1, 2022.
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.
“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,” Diokno said.
The BSP issued a memorandum last year, highlighting its 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.
Diokno said banks should start putting necessary systems and infrastructure in place, and establishing appropriate contractual arrangements to prepare for the transition.
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.