The Monetary Authority of Singapore (“MAS”) expects financial institutions (“FIs”) in Singapore to be prepared well ahead of end-2021 for the discontinuation of the London Inter-bank Offered Rate (“LIBOR”) and correspondingly, the Singapore Dollar Swap Offer Rate (“SOR”), which uses USD LIBOR in its computation.
FIs should closely monitor their usage of LIBOR and SOR, and proactively plan for an early transition of their legacy LIBOR and SOR contracts to alternative reference rates. This will ensure that parties to transactions can execute changes to their contracts in good time. FIs should also put in place robust contractual fallbacks to address the risk of contractual frustration or settlement issues in contracts that would not have transitioned by the time of LIBOR discontinuation.
MAS strongly encourages FIs with exposures to LIBOR or SOR derivatives transactions to adhere to the International Swaps and Derivatives Association’s (“ISDA”) inter-bank offered rates (“IBOR”) Fallback Protocol, which will be published in the coming weeks alongside an ISDA IBOR Fallback Supplement. ISDA developed these fallback documents at the request of the Financial Stability Board’s Official Sector Steering Group (“OSSG”)
The IBOR Fallback Protocol will facilitate multi-lateral contractual amendments for existing derivatives transactions by incorporating the IBOR Fallback Supplement, which sets out the contractual fallback arrangements for LIBOR, SOR and other key IBORs. Meanwhile, all new derivatives transactions based on the 2006 ISDA Definitions will automatically incorporate the IBOR Fallback Supplement, if these are initiated after the IBOR Fallback Supplement comes into effect later this year. FIs should prepare for the necessary operational and systems changes needed to accommodate the use of fallback rates, well ahead of end-2021.
MAS also expects FIs with the relevant cash market exposures to closely monitor the contractual fallbacks being developed for business and mortgage loans, floating rate notes, securitisations and other products, which various national working groups will be recommending
MAS will continue to monitor individual FI’s progress in preparing for the discontinuation of LIBOR and SOR.