HKMA Expects Adherence to ISDA IBOR Fallbacks Protocol

The HKMA expects authorised institutions to adhere to the Protocol before it takes effect and to take encourage counterparties to do the same.

The HKMA (Hong Kong Monetary Authority) has written to banks asking them to take early action to adhere to ISDA's IBOR Fallbacks Protocol.

ISDA announced on 9 October that it will launch the 2020 IBOR Fallbacks Protocol and the Supplement to the 2006 ISDA Definitions on 23 October 2020. Both will take effect on 25 January 2021.

"The launch of the Protocol and the Supplement marks an important step for derivatives markets in the transition from LIBOR to alternative reference rates (ARRs)," the HKMA said.

"The HKMA expects [authorised institutions] to adhere to the Protocol before it takes effect and take proactive steps to encourage their counterparties to do the same."

For existing LIBOR-linked derivatives contracts to which the Protocol is not applicable, banks should continue to work with their counterparties to transition to ARRs.

All new derivatives contracts referencing the 2006 ISDA Definitions and executed on or after 25 January 2021 will automatically incorporate the fallbacks.

Last week, the TMA (Treasury Markets Association) also issued a statement welcoming ISDA's announcement and encouraging its members to adhere to the supplement and protocol.