Supervisory Expectations for Benchmarks Transition

Dated 23 April 2021

In a circular issued on 1 September 2020 regarding the “Preparation for LIBOR Discontinuation: Enhancing Contractual Robustness”, the Monetary Authority of Singapore (“MAS”) stated its expectations for financial institutions (“FIs”) 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. MAS reminded FIs to plan proactively for an early transition of their legacy LIBOR and SOR contracts to Alternative Reference Rates (“ARRs”); put in place robust contractual fallbacks to address the risk of contract frustration or settlement issues in contracts that have not transitioned by the time of LIBOR discontinuation; and keep abreast of international and local developments regarding the reform of interest rate benchmarks. 

Timelines for LIBOR transition

On 16 October 2020, the Financial Stability Board (“FSB”) published the Global Transition Roadmap for LIBOR (“GTR”).Refer to FSB’s Global Transition Roadmap for LIBOR here The GTR sets out a timetable of actions to guide market participants with LIBOR exposures towards a smooth and timely LIBOR transition by end-2021. On 5 March 2021, ICE Benchmark Administration (“IBA”), the administrator for LIBOR, released the results of its consultation on the timelines to cease the publication of LIBORIn December 2020, IBA released its consultation to cease after 31 December 2021, the publication of all GBP, EUR, CHF and JPY LIBOR (“non-USD LIBOR”) as well as 1-week and 2-month USD LIBOR settings, and to cease after 30 June 2023 the remaining USD LIBOR settings. The consultation closed on 25 January 2021 and the feedback published on 5 March 2021. Refer to the ICE LIBOR Consultation on Potential Cessation here , and IBA’s feedback statement post consultation here .. The UK Financial Conduct Authority (“FCA”) concurrently announced that all tenors of GBP, EUR, CHF and JPY LIBOR (“non-USD LIBOR”), as well as 1-week and 2-month USD LIBOR, will either cease publication or no longer be representative immediately after 31 December 2021, while the remaining tenors of USD LIBOR will either cease publication or no longer be representative immediately after 30 June 2023Refer to UK FCA’s announcement on the future cessation and loss of representativeness of the LIBOR benchmarks here .. These revised timelines provide market participants with more leeway to handle the resolution of certain legacy USD LIBOR contracts and SOR contracts.

Notwithstanding the revised cessation timelines for USD LIBOR, supervisory authorities and national working groups in major jurisdictions have issued LIBOR transition timelines to their supervised institutions and market participants to cease usage of LIBOR in new contracts and to maintain the momentum to transition away from LIBOR to ARRs. There also remains a need to continue fostering the adoption of ARRs and the development of a deep and liquid ARR market.  

In this regard, FIs must continue to prepare for the transition in terms of staff, processes and systems.  FIs should track their progress closely and cater sufficient buffer to address unanticipated delays. Failure to prepare well may heighten the risk of contract frustration arising from incomplete contracts remediation, as well as a breakdown in risk processes from incomplete systems enhancement and inadequate staff training.  

To guide the industry, MAS has developed a set of transition timelines that FIs are expected to adhere to in their benchmark transition plans and execution. Please refer to Transition Milestones in Singapore – LIBOR for these timelines.  


Timelines for SOR and SIBOR to SORA transition

On 27 October 2020 and 31 March 2021, the Steering Committee for SOR & SIBOR Transition to SORA (“SC-STS”) announced timelines to coordinate the financial industry’s shift away from the use of SOR and the Singapore Interbank Offered Rate (“SIBOR”) in financial products, and to concurrently accelerate usage of the Singapore Overnight Rate Average (“SORA”)Refer to SC-STS’ Publication of 27 October 2020 and 31 March 2021 .. MAS fully supports SC-STS’s timelines and its industry guidance to prepare for the discontinuation of SOR and SIBOR, which would support a successful transition to a SORA-centred interest rate benchmark regime. Please refer to Transition Milestones in Singapore – SOR and SIBOR for SC-STS’s transition timelines.

Principles on customer engagement

FIs are expected to put in place comprehensive communication plans to help their customers prepare for the transition. A robust channel for customers to make enquiries and provide feedback will reduce the potential for disputes and reputational risk. To this end, FIs’ communication strategy should take into account MAS’ Guidelines on Fair DealingRefer to Guidelines on Fair Dealing - Board and Senior Management Responsibilities for Delivering Fair Dealing Outcomes to Customers here., and adhere to the following principles:

  1. Tailor engagement plans to different customer segments
    A successful communication plan takes into account varying levels of financial sophistication and employs appropriate communication channels for different customer segments. FIs should provide clear, relevant, adequate and timely information to customers to raise their awareness of the transition and the economic differences between Inter-bank Offered Rates and ARRs. FIs should also provide clear explanations on the impact of the transition on customers’ contracts and the risks that customers may be exposed to. 

  2. Provide meaningful options and information to support decision-making
    Where relevant, FIs should present customers with suitable options to transition their existing contracts or introduce adequate fallback provisions. The options should be accompanied by clear and easy to understand information on the implications of each option (including the benefits, costs and risks) to help customers evaluate the suitability of the options to their needs. Additionally, FIs should give customers a reasonable amount of time to evaluate the available options and make informed decisions.

  3. Provide adequate customer support channels
    FIs should provide customers with effective channels to seek clarification and assistance for contract negotiations. FIs should also ensure that all customer-facing staff are well-trained and equipped with up-to-date information to explain the transition, represent the available options and their implications, and handle enquiries. While FIs should proactively address their customers’ concerns, they should also establish adequate dispute management mechanisms to promptly address complaints and disputes, and provide for fair resolutions that duly consider customers’ interests.

MAS expects all FIs to comply with the above-mentioned transition timelines and adopt the principles on customer engagement. FIs should implement measures and allocate resources needed to achieve a smooth transition. MAS will closely monitor the progress of FIs in preparing for the discontinuation of LIBOR, as well as SOR and SIBOR.