As Of June 30, LIBOR Transition Ends, BI Suggests This For Market Players

JAKARTA - Bank Indonesia (BI) responded to the National Working Group on Benchmark Reform (NWGBR)[ which informed that the transition period for the London Interbank Offered Rate (LIBOR) will end in the near future as part of the global benchmark reform agenda.

In today's BI press release, it was revealed that this was in accordance with the Financial Conduct Authority (FCA) plan as the LIBOR authority which will stop all USD LIBOR publications on June 30, 2023.

To anticipate the end of LIBOR and Financial Stability Board Official Sector Steering Group (FSB-OSSG) recommendations, NWGBR recommends that market participants no longer use LIBOR. Market participants should use an alternative Reference Rate (ARR) that is robust, sustainable, and compatible with relevant guidelines and regulations," wrote BI on Tuesday, June 27.

According to the central bank, market participants who need more detailed information regarding recommendations and anticipation of the impact of the LIBOR transition can refer to the LIBOR Transitional Guide published on December 24, 2021 by NWGBR.

It was stated that the guidelines were prepared based on recommendations and best practices that are international banking references, including those related to communication strategies, exposure identification and validation, operational preparation, technology and reporting, as well as risk management.

Given that some jurisdictions have not been able to complete the LIBOR transition in full, the FCA still provides the USD LIBOR tenor publication opportunity of 1 month, 3 months, and 6 months by using the'synthetic' methodology (USD LIBOR Synthetic), "explained BI.

Meanwhile, in using USD LIBOR Synthetics, market participants should pay attention to the following:

(1) USD LIBOR Synthetics are not for use in new financial contracts and are only used in outstanding LIBOR contracts that are difficult to change (through legacy contract) and which are not cleared derivatives

(2) The use of USD LIBOR Synthetics is an agreement between the two transacting parties

(3) The publication of USD LIBOR Synthetics is only temporary and will end on September 30, 2024.

"NWGBR supports the smooth process of the LIBOR transition and provides information for market participants regarding the benchmark reform agenda in the domestic financial market," said the press release.

For information, NWGBR was officially formed on November 23, 2021 by Bank Indonesia, the Financial Services Authority, the Ministry of Finance, and the Indonesia Foreign Exchange Market Committee (IFEMC).

NWGBR has three main functions, namely providing information and education to market participants in supporting the smooth LIBOR transition process, providing information for market players regarding the benchmark reform agenda in the domestic financial market.

And the last one provides alternative benchmark rate recommendations (Alternative Reference Rate/ARR) in the domestic financial market.