Lead Sponsor

Endorser1

Agenda:Time (WIB)

Session10:00 – 10:10

Welcome Remarks• Mark Austen, CEO, ASIFMA• Darmawan Junaidi, Chairman, Indonesia Foreign Exchange Market Committee

10:10 – 10:30

Keynote Address• Donny Hutabarat, Executive Director of Financial Market Development Department,
Bank Indonesia

10:30 – 10:35

ASIFMA Regional Update• Philippe Dirckx, Managing Director – Head of Fixed Income, ASIFMA

10:35 – 10:50

Impact of LIBOR Transition on Indonesian Banking Industry and Key Considerations for a
Smooth Transition• Sergey Volkov, Partner, Japan, PwC
2

Agenda:Time (WIB)

Session

10:50 – 11:30

Product Presentations• Jing Gu, Head of Legal, Asia Pacific, ISDA
• Mushtaq Kapasi, Managing Director – Chief Representative Asia
Pacific, ICMA
• Adrian Cheng, Partner, Finance Singapore, Herbert Smith Freehills• Adrianus Arditomo (Tommy), Partner, Hiswara Bunjamin & Tandjung

11:30 – 11:45

Data and Infrastructure Preparedness: Practical Challenges of IBOR Transition• Edmund
Lee,
OTC
Data
StrategyManager,
Asia
Pacific
Bloomberg L.P.

11:45 – 12:15

Banking Panel on Implementation/Conduct Issues• Branko Windoe, Senior Executive Vice President, Bank Central Asia
• Tony, Deputy Director, Basel and International Banking, Banking Researchand Regulation Department, Indonesian Financial Services Authority• Tiak-Peow Phua, Executive Director, Libor Transition, Conduct, Financial
Crime and Compliance, Standard Chartered• Ryan Page, Proposition Specialist, Refinitiv (moderator)
3

Agenda:Time (WIB)

Session12:15– 12:25

Accounting and Taxation Issues• David Wake, Advisor – PwC Indonesia Financial Services Leader, PwC

12:25– 12:30

Closing Remarks• Steve Dean, President Director, Refinitiv Indonesia

4Welcome Remarks:

Mark AustenCEO
ASIFMA

5

Lead Sponsor

Endorser6

Welcome Remarks:

Darmawan Junaidi
ChairmanIndonesia Foreign Exchange Market Committee

7

Lead Sponsor

Endorser8

Keynote Address:

Donny Hutabarat
Executive Director of Financial Market Development
Bank Indonesia

9Lead Sponsor

Endorser10

ASIFMA Regional Update:Philippe Dirckx
Managing Director – Head of Fixed Income
ASIFMA

11

Areas to cover:•••

IBOR Transition Guide for Asia published by ASIFMA, ICMA, ISDA andAPLMA, with contribution from Deloitte and Morgan Lewis.

Survey of ASIFMA Members on external frictions yet to be resolved
Regional education program: Singapore, Malaysia, Philippines,
Thailand, Vietnam, Indonesia, and India
12

Lead Sponsor

Endorser13

Impact of LIBOR Transition on Indonesian Banking Industry and Key
Considerations for a Smooth Transition:

Sergey Volkov
Partner, Japan
PwC

14

Impact of LIBOR
Transition on
Indonesian
Banking Industry
Key considerations for asmooth transition
December 16, 2020
© 2020 PwC. All rights reserved. PwC refers to the PwC network member
firms and/or their specified subsidiaries in Japan, and may sometimes referto the PwC network. Each of such firms and subsidiaries is a separate legal
entity. Please see www.pwc.com/structure for further details. This content isfor general information purposes only, and should not be used as a
substitute for consultation with professional advisors.

LIBOR reform affects a wide range of financial products
For financial institutions, LIBOR reform will affect a wide range of financial products across most business lines

Sales & trading

Corporate banking

Asset management

Retail & wealth

Insurance

Derivatives
Bonds
Loans
Securitization

Loans & Leases
Structured Debt
Trade Financing
Treasury Services
Underwriting
Derivatives

Mutual Funds
ETFs
Segregated Funds
Alternative Funds
Pension Funds
Derivatives

Deposits
Mortgages
Loans

AssetsDerivatives
Liabilities
Loans
Reinsurance

List of products is indicativeand not comprehensive

Projected remaining USD notional linked to LIBOR after 2021

Loans:
Syndicated
Loans ($255bn)
Securitization:
MBS ($516bn)

Securitization:
ABS ($90bn)

Bonds: FRNs($288bn)

As of 2016, LIBOR referenced contracts accounted for:
72%

71%

82%

of the OTC
derivatives marketof syndicated loansof floating rate notes

Substantial
proportionof securitization &loan markets

There are approximately $200 trillion USD in LIBOR linked contracts(>$35 trillion currently have maturities beyond the 2021 cut-off date),requiring significant effort for remediation

OTC: Interest Rate
Swaps ($28tn)
Securitization:
CLO ($296bn)
ETD: Interest Rate
Futures ($110bn)

PwC

OTC: X-Currency Swaps($2tn)

Source: NY FED – The Alternative Reference Rate Committee, Second Report (2018) and
PwC analysis. Data as of year-end 2016
December 2020
16

LIBOR’s Last Days: How could it play out

Recent announcements from LIBOR administrator and UK and US regulators indicate a path forward for LIBOR cessation. Path
forward is subject to change* and milestones and related timing described below remain uncertain.
TODAY

Q1 2021

December 31 2021

June 30, 2023

Only Legacy products can continue
to use USD LIBOR

Publication ceases

IndONIA
Overnight (O/N)

IDR
IndONIA
JIBOR

JIBOR
1W, 1M, 3M 6M,
12M

O/N, 1M, 3M, 6M,
12M settings

Announcement
Publication will Cease
after June 30 2023

1W, 2M settings

Announce: publication will Cease
after December 31, 2021

Publication ceases

All Settings
O/N, 1W, 1M, 2M,
3M, 6M, 12M

Announcement
Publication will Cease
after December 31 2021

Publication ceases

USD
LIBOR

New Products cannot use
USD LIBOR after 2021

GBP LIBOR

JPY LIBOR*ICE Benchmark Administration consultation issued on December
4, proposed UK BMR legislation changes, FCA consultations andother developments are expected to clarify and may change themilestones and timing displayed here

EUR LIBOR

CHF LIBOR
PwC

LIBOR Fallback Spread Fixed

December 202017

Global IBOR transition programs at a glance
The IBOR transition programs have different levels of maturity across the globe. Most of the banks in North America and Europe have made significant
progress on remediation, while progress is mixed across APAC.
Canada•Largest Banks•
Prep work done or nearly done•
Contract remediation well underway•
Detailed client negotiations to pick up in early
2021

•
•
•
•
•
•
•

United States••

Majority FIs•
New product issuance - FRN•
RFR derivative trading capabilities•
System work complete or nearly complete•
Central query management•
Bilateral negotiations underway, expected toramp up in early 2021•
Legacy contract remediation to ramp up Q2
2021-Q3 2021•
Treasury remediation well underway•
Model remediation complete or underway••

Vietnam
•
•

•

•
•
•
•
•

•
•

FRN issuance entirely in SONIA
Significant volume of derivative trading in SONIA
Active push on SONIA and other RFR lending
New RFR lending ramp up expected in Q1 2021
Contract remediation well underway, analysis
complete or nearly complete, transition rules andSource: PwC
logic complete or nearly complete
Central query management
PwC
Active regulatory reporting of exposures

MAS letter issued in March 2019
SOR (LIBOR based) to be discontinued
SIBOR expected to be discontinued in the medium term
Large local banks established programs
Ongoing impact assessment
New product development on RFRs
Management of basis risks and ALM
Proposed movement to a single rate SORA
SORA-based instruments gaining momentum:
Nov 19 OCBC and SCB completed SG’s first OIS trade
May 20 DBS priced the markets first SORA-referencednotes
June 20 OCBC issued first SORA based loan

•

•
•

•
•

HKMA initial circular issued in March 2019
Programs initiated across Financial Institutions
Most have completed impact assessment and arepreparing for AAR product launch and for contract
remediation
MNCs banks more advanced than local banks
1st SOFR Loan issued by BOC HK to a corporate••

No official communication yet
Index admin is planning launch new benchmark
VNONIA by 2021Q2
Planned discontinuation of VNIBOR and VNDFX
Few large FIs have good amount of exposures against
corporates, institutional investors
High-level impact assessment done by few banks
Most FIs are still waiting for an official announcement••

IndONIA became effective overnight rate in January
2019
JIBOR continues as the term rate (1W, 1M, 3M, 6M,
12M)

BOT issued Dear CEO letter in June 2020 to financial
institutions in Thailand
THBFIX to be replaced (USD LIBOR input) with prohibition
on new products by June 2021
THOR, alternative reference rate adopted in April 2020
BIBOR, the local IBOR, to coexist with THOR
Institutions have mobilized to meet key BOT milestones

Philippines
•
•
•

India
•
•
•

MIFOR (uses USD LIBOR as input) will be discontinued/ reformed
Dear CEO letter - August 2020, qualitative andquantitative
Indian Bankers Association - work on MIFOR
replacement, LIBOR transition and outreach

Japan
•
•
•
•
•

PHIREF uses USD LIBOR as an input and must be
reformed
Banks expected to have viable transition plans
Quarterly reporting to BSP on LIBOR-related exposuresfor Sep 2020 to Mar 2022

Large domestic FIs and inbound banks have wellprogressed programs
Remediation workstreams well underway
RFR system capabilities expected by Q1 2021
Significant transition expected by mid 2021
RFR lending product development in progress

TaiwanIndonesia

Thailand•Europe including UK

Hong Kong

Singapore•••

Dear CEO Letter issued by Taiwan’s FSC & Central
Bank in early 2020
A working group has been formed by Taiwan Bankers
Association to assess exposure
Most banks have initiated programs

Mainland China••

PBOC published a white paper on 31 Aug promoting
the use of Depository-Institutions Repo Rate (“DR”) for
the transition from LIBOR
The PBOC has constituted a high-level working group,
and is developing a road map and a timetable to shift
the benchmark

Australia
ASIC issued a LIBOR-focused dear CEO letter in May
2019, update in 2020, another specific to large corporates
in May 2020 and issued a “Managing Conduct Risk
Information Sheet in Nov 2020.
Tier II FIs and Asset Managers standing up programs
Larger FIs well progressed in program
Increasing response focus inc. BBSWMalaysia•••

Pending the review of the status of KLIBOR as abenchmark rate.
The Average Overnight Interbank Rate (AOIR) will be
developed as a short-term alternative benchmark rate.
The AOIR framework will be aligned with IOSCO

December 202018

Regulatory expectations on key milestones (by jurisdiction)
Milestone

1

2

US - ARRC

LIBOR sunset
Dec 2020: FRNs
Stopping new LIBOR- June 2021: Businessreferenced issuance loans, floating-rate(expiring/ maturing
securitizations (other thanafter 2021)*
CLOs), and derivatives
Sep 2021: CLOs
Issue RFR products Dec 2020: Dealers tomake markets in nonlinear
RFR derivatives
March 2021: Dealers tochange market convention
for quoting USD
derivatives from LIBOR to
SOFR
IT Readiness:
Vendor readiness dates
IT Readiness toare as follows:
handle RFR average / June 2020: Floating ratecompound averagenotes
Sept 2020: Business andconsumer loans
Dec 2020: Securitizations

UK - RFRWG

Japan - BOJ CIC

Q1 2021: Linear
Q2 2021: Loans and bonds
derivatives and cash
products (other than risk
management)
Q2/Q3 2021: Non-linear/
CCY derivatives-

HK - HKMA

TH- BOT

MY - BNM

Jun 2021: All products

April 2021: SOR Loans

July 2021: Loans, bonds
and structured products

Q2 2021: Cease issuanceof products referenced to
LIBOR

Jan 2021: FIs ready tooffer RFR products

Feb 2021: D-SIBs to issue April 2021: Fls ready toa full suite of SORA
offer derivative products
products
referencing THOR

Q2 2021: Issuance of
product referenced to RFR

Q3 2020: Key
Q4 2020: Manual
Jan 2021: FIs ready to
infrastructure available
workarounds to support new offer RFR products andfrom Treasury systems
products
are allowed manual/loan vendors
Q1 2021: Systems/
workarounds
Q4 2020: Operational
operations for new RFR
readiness to support
products
non-linear SONIA
derivatives
Q3 2020: Include
Q4 2020: Publish the
Jan 2021: Fallback to be
4 Remediate Contracts Include ARRC
Hardwired fallbacks recommended fallbacks:
contractual mechanisms amended definitions andincluded in all new LIBORrequired
June 2020: New FRNs,(Active Transition
protocol (ISDA)
linked contracts (type ofARMs, and securitisations Clauses) in all new
fallback unspecified)
Sept 2020: New
LIBOR-refinanced
syndicated business/
products
student loans
Oct 2020: New bilateralbusiness loans
5 Remediate contracts Dec 2020: Dealers should Q2/ Q3 2021: Complete Q3 2020: Start negotiations to reduce LIBOR
amend interfirm CSAs
active conversion of cash among contracting parties
exposure
products. Actively convert Q3 2021: Significantly
significantly on- / offlinear derivatives where reduce LIBOR loans andBS
viable.
bonds
Jan 2021 widespread
Jan 2021: HKMA advised
6 Contract remediation Jan 2021 (3-4 months
Sign ISDA protocol
after publication)
sign up ahead of effective
to take early action to
PwC
date
adhere3

SG - ABS

April 2021: All banks tooffer full suite of SORA
products

Q2 2021: Incorporate
fallbacks for legacy cash
products

July 2021: Fls ready tooffer loans referencing
THOR
July 2021: All systemmodification completed tosupport the use ofcompound setting inarrears interest rates

Q4 2020: Complete
assessment on operational
readiness and capability
for new RFR products

July 2021: Fallback to be
included in all THBFIX,LIBOR and other IBOR
contracts

Q2 2021: All LIBOR loan
contracts to have fallback
provisions, including test
capability to execute
fallback

Q3 2021: Banks to reduce exposure to SOR
derivatives by 80% (fromlevel in May 2020)

Q3 2020: Engage
Borrower to renegotiate
contracts and incorporate
fallback provisions

Sign up for the ISDA
protocol for SOR
derivatives

Q1 2021: Incorporate
December for2020
fallbacks provisions
allderivatives contracts 19

Eight areas banks globally are focusing on
Issue new products••••

Remediate treasury•

Establish transition strategy for new products
Navigate new product approval
Execute test trades and pilot issuances
Shift to full-scale programs as soon as practicable

Issue newproducts

Remediate
treasury••

Remediate infrastructure•••

Identify impacted business processes and systems
and typical lead time required for changes
Determine changes required and dependencies
Remediate internal systems and manage
remediation of vendor systems

Risk and valuation models•••

Perform contract discovery
Analyze contracts
Establish business rules, templates and playbooks
for transition
Execute repapering

IBOR &
Reference
Rate Reform

•
•
•

PwC

Determine engagement strategy with industry groups andtrade associations
Develop engagement approach with regulatory bodies e.g.
consumer protection
Coordinate customer outreach across businesses
Evaluate impact of timeline differences across jurisdictions

Clientoutreach•••

Tax andaccounting
impacts

Remediate
contracts

Client outreach•

Risk andvaluationmodelsRemediate
IT

Remediate contracts•

Manage of transition across cash instruments, debt andderivatives
Manage transition of cross-currency positions
Manage investment portfolios through transition

Identify, enhance and validate all models required toswitch from IBOR to new rates
Develop time series of data for risk and capital models
Develop framework for simulation uncertainty of new
rates for capital and funding requirements

Tax, accounting and other impacts••

Determine impact of new hedge accounting standards
Evaluate operational approaches to contract
modification and potential tax impact triggered bymodifications

Conduct risk

Manage conduct risk•

Define internal and external communication strategies•

Establish clear policies, procedures and controls•

Maintain transparent and open communication withregulators

December 2020
20

LIBOR transition: How are firms approaching remediation?
Phase 1: Risk assessment and remediation plan
Mobilize a LIBOR Transition program, governance structure, and workstreams. Draft overall
transition roadmap and budgets. Define transition scenarios and develop risk mitigation strategies.

Program Structure, Governanceand PMO

Conduct qualitative and quantitative impact assessments across all business areas andfunctions. Develop a transition plan and a transition strategy

Impact Assessment andRemediation Plan

Phase 2: Remediate

PwC

Define business strategy for transitioning legacy products and developing new RFR products,
including evaluation of economic impacts and new product approval processes.

New Benchmark Markets &Product Transition

Identify, inventory, and digitize affected contracts. Develop contract remediation strategy for different
types of contracts & re-negotiate as appropriate. Update contract language for new deals.

Contract Remediation

Client Outreach, client strategy, including client segmentation, to take advantage of client andrelationship opportunities. Manage internal and external outreach, education, and communications.

Client Strategy, Outreach andCommunications

Define requirements for and implement changes to systems and processes, including vended
solutions, market data feeds, and business processes to enable alternative RFR processing.

Systems & Process Changes

Update and re-validate pricing and risk management models, including curve construction,
discounting, and valuation.

Risk & Valuation Models

Update financial reporting and accounting processes in accordance with industry guidance.
Evaluate tax impacts and update strategy to mitigate impacts.

Financial Reporting & Tax December 2020
21

LIBOR Transition - Regional and Local Progress
Key Areas / Key Tasks
Accurately measure LIBOR and RFR exposure (one time)

Regional Regulatory expectations

Strong process to systematically measure LIBOR/RFR exposure

Periodic reporting to regulator

Completed

LIBOR Exposure Tracking of fallbacks linked to exposure on a systematic basis

IT

Client Outreach

LIBOR exposure and RFR exposure targets

Targets established

In place or in progress

Actual reduction of LIBOR exposure evident in a material way

By Q3 2021

PlannedDevelop systems and operations bylate 2020 or first half 2021

Completed by someCompleted
In progress, late 2020, early 2021
Late 2020, early 2021

EUCs implemented to handle transactions (if system is not ready)IT requirements
Development (internal) implementation
Testing
Identify changes needed
Conceptual design / business
Operational readiness
New product approval
LaunchImpacted client identification; segmentation; outreach strategy
General communication - (eg LIBOR is going away)
Central query management
Specific communication
Detailed negotiations (e.g. discuss transition policy with clients)

Late 2020, early 2021
Completed
In progress, some complete
In progress, some complete
In progress, some complete
Some complete, target - early 2021
Completed
Completed
LIBOR loan contracts to have fallback In place for some; not for others
provisions, including test capability to Planned, Q3/Q4 2020- mid-2021
execute fallbacks
Planned, Q3/Q4 2020- mid-2021
Cease issuance of products
referenced to LIBOR by Q2 2021 orsoonerActual execution of legacy trade conversion

Contract
Remediation

LIBOR contract identification, inventory, repository
Contract analysis
Transition strategy (active transition, fallback, etc)
Development of active transition language (conversion before cessation)

Amendments (Hardwired)
PwC

In progress
In progress

Go live

New Products

APAC Progress

Planned, mid-late 2021
N/A - No specific expected timelines
announced except derivatives (Forderivatives, express the expectation
to adhere ISDA by Q1 2021)

Completed
In progress, some complete
In progress, some complete
In progressSome peer banks completed
December 202022

Phase 1: Risk assessment and remediation plan

Transition strategy
Business strategy drives transition path, including whether and how exposure should be remediatedIllustrative
Contracts
ISDAs,
Masters,
Contracts
Loans, Bonds, etc.

Close out and sell

Wait and see!

Remediate

ISDA

Highly Standardized

Type(e.g. ISDA Master
Agreements)(e.g. LMA, LSTA,
JSLA, Others)

Highly Bespoke(Cash products with
big customers,
Compression, Others)(e.g. Bilateral Loans, bespoke
trades, Others)

Restructure

Analyze & Patch

Replace

ProtocolStrategy•

Plain Vanilla

Elect to adhere to
protocol••Use publishedtemplates for SOFR
and SONIA
Develop spreadadjustments••

Submit trades that
subject tocompression
Agree to compression
proposal

Out
comes

New definitions applied

New contracts (needbenchmark spreadadjustments)

Restructured
agreements

Low

Low

Low

ML

MH

High

ML

MH

High

ML

•
•
•
•

Find LIBOR and analyze
Structure data
Populate database
Apply rules for spreadadjustments and fallback

Clause by clause amendments

MH

High

Low

ML

MH

High

Hard Legacy(FRNs, Bonds, Other “hard legacy”)•

Analyze & Patch(Hard Legacy)
Consent solicitation

Bond Buyback•

Tender offer orIssuer call

Amended contracts

New contracts
referencing ARR

Low

Low

ML

MH

High

ML

MH

High

Costs
Operations
Hedge Acct
Val. Transfer

PwC

December 202023

Phase 2: Remediate

Business & systems change impact across banking
Front book

Front office

Front Office & Channels

Product management

Middle office /Other functions
Operations

High impact

Medium impact

CRM & Contract Management

Branch / Teller
Front Office

Online / Mobile /Channels

Call centre / IVR

New productdevelopment

Product
maintenance

Asset management

Campaign
Management

Single Customer
View

Pricing

Benchmarkremapping

Sourcing &Origination

Asset servicing

Syndications

Structuring

Case management

Contract creation

Trade finance /booking

Relationshipmanagement

Transaction
banking FO

Master productsetup

Template
management

Renewal &MaintenanceRisk management

PwC

Front & Back book

Back bookFinance and reporting

Legal & Compliance

Credit Middle Office

Trade & Clearing

Market Risk
management

Financial accounting

Valuationand MTM

Legal documents

Credit scoring

Underwriting

Asset liability
management

Capital modelling

P&L attribution

Tax & Cost analysis

Contract maintenanceCounterparty /Collateral mgmt

Credit admin

Liquidity risk
management

Limits setup andmonitoring

Financial reporting

Regulatory reporting

Debt restructuring /Collection

Loan monitoring

Business operations and IT infrastructure
Clearing andsettlements

Collateralmanagement

Transaction
reportingAccount fulfilment

Product fulfilment

Document
management

Exceptions
management

IT infrastructure

December 202024

Phase 2: Remediate

Contract remediation
Strategy
Rulesets andPlaybooks

Map and link
Data Model
Find
Inventory
Organize

Contract template authoring
Amendment production
Amendment validation

Extraction

Execution

RebookingPhase 1 – Extraction and Analysis

1
Document
identificationand location

PwC

2

3

Establish a
Data model

Map contracts
to entities,
create a single
client view andestablishhierarchies

45Extract relevant
data fromcontracts andconvert it tostructured data

Establish client
communicationand outreachstrategy,
process andcontrols

6

7

Prioritize
contracts andclients anddetermine theoptimalapproach

Formalize
templates,
business rules
and develop
playbooks,

Phase 4
RebookTradesPhase 3 – Client
outreach andremediation (repapering)

Phase 2 – Client Strategy and Outreach
Planning

8
Create draft
contracts
based ontemplates /monitor forconsent
requests

9
Negotiate withcounterparties
utilizing our
playbooks andworkflows

10
Rebook trades

Execute final
contracts

December 202025

Phase 2: Remediate

Developing a client engagement strategy
Begin with identifying your clients andsegmenting them into clusters….

Strategic
elements(relevance,
wallet)Conductrisk

Conduct riskwhat segments
are high
conduct risk
and need
special care?

Profitability

Client profiles

Relationshipmaps

Drive engagement plans according to the client groupings you have identified across the clusters

Geography
andindustry

Product types
currencies,
notionals

Opportunitywhere can thebank havehighest impact
and/or protect
against loss?

•
•
•

•
•
•

Complexitywhat
deals/products
will require‘SWAT” teams,
or should be
deprioritized?

•

Actions
Prioritisation of digitisation andexposure analysis byclient/productMarketing and coverage plans
Regional approaches- whatclients are handled out of what
geographies, and who handles
the communication andnegotiations
Identification of client needs andsolutions
Conduct principles andmitigating actions by client type,product type
Identification of potential
partnerships
Identification of required
resources

•
•
•
•
•
•
•
•
•
•

Desired Outcomes
Better client service
Cost avoidancePrioritisation
Improved risk management
Satisfy the regulators
Foster trust with regulatorsand counterparties
Differentiate the organisation
Create economic advantage
Increase positive clientinteractions
Drive client comms andinsight generation

It’s important you’re not hearing the following messages from you clients“Do you speak to eachother? It’s like working
with different firms”

PwC“Multiple people havespoken to me or mycolleagues this week
about IBOR”“This is the fifth time I’ve
been contacted thisweek on some
Regulation”“How come no one has
called me about IBOR”“Didn’t we just amend
this same agreement?”

December 202026

Phase 2: Remediate

Conduct risk: regulatory focus
There are a wide range of conduct obligations that firms need to map

Mis-selling

Clients believe they have been misinformed of a LIBOR or
RFR linked product prior to the purchase of that productthrough advisory or non-advisory channels.

Data Protection &Confidentiality

The risk of sharing client confidential information or acontract with someone inside/ outside the company whodoes not have the authority when renewing a contract.

Market disruption
and Investor
protection

Market disruption caused through LIBOR transition where
the firm continued to issue long dated products that
directly or indirectly reference LIBOR.

Marketmanipulation

Manipulation of alternative interest rates either directly/
indirectly through market trading or price offering.

Economic valuetransfer

Client disputes due to the change of rate and subsequentvalue transfer in legacy positions which are not in favour ofthe client.

Market Trading/Insider Trading

Use of non-public information related to RFR and/or
LIBOR to benefit themselves leading to an increase of
market manipulation.

Best execution andfiduciary role

A firm is unable to adhere to their best execution
obligations and/or their wider fiduciary duties due toswitching to RFRs or diminishing liquidity LIBOR
linked products.

Competition law

Risk of Competition Law violations including conduction ofwork within working groups or the exchange of information
with competitor firms in the same industry.

Misleading,inadequateclient comms

Disputes in advisory, non-advisory services where client
feels they received misrepresentative or inadequate
information on levels of liquidity, sustainability of LIBOR.

Conflicts ofInterest

Risk of the firm’s interests being in conflict with the clientsand the firm taking advantage of the information
asymmetries or powers.

PwC

December 2020
27

PwC APAC LIBOR Team
Reach out to PwC’s industry-leading LIBOR professionals for the knowledge, guidance, holistic digital solutions and support you needacross all aspects of your business.
Japan (Japan LIBOR website)

India (India LIBOR website)

Singapore

Hong Kong (HK LIBOR website)

New ZealandIndonesia

Sergey Volkov
APAC LIBOR Leader,Partner, Japan
sergey.volkov@pwc.com

Kuntal Sur
India LIBOR co-Leader
kuntal.sur@pwc.com

Ilka Vázquez
Partner, HK LIBOR co-Leader
ilka.t.vazquez@hk.pwc.com

Andy Symons
New Zealand LIBOR Leader
Partner, New Zealandandy.d.symons@pwc.com

Samuel Ong
Partner, Indonesia
Samuel.ong@id.pwc.com

Tetsuya Adachi
Partner, Japantetsuya.adachi@pwc.com

Ruchi Sharma
India LIBOR Leader
Executive Director, India
ruchi.sharma@pwc.com

Yura Mahindroo
Singapore LIBOR Leader
Partner, Singapore
yura.k.mahindroo@pwc.com
Irene Liu
Partner, Singapore
Irene.l.liu@pwc.com

Amy Yeung
Partner, HK LIBOR co-Leader
amy.yk.yeung@hk.pwc.com

Hideki Ishii
Partner, Japanhideki.ishii@pwc.com

Sandeep Agrawal
Managing Director, India
Sandeep.agrawal@pwc.com

Ryuichi Nagano
Partner, Japanryuichi.nagano@pwc.com

Ankur Jain
Partner, India
Ankur.a.jain@pwc.com

Australia (AU LIBOR website)

Denise Lim
Partner, Singapore
denise.ll.lim@pwc.com
Johnathan Tay
Director, Singapore
johnathan.m.tay@sg.pwc.com

Malaysia
Alfredo Martinez
Australia LIBOR co-Leader
Partner, Australia
alfredo.martinez@pwc.com

Alastair Findlay
Australia LIBOR co-Leader
Partner, Australia
alastair.findlay@pwc.com
Korea
Bum Hong
Korea LIBOR Leader
Partner, Korea
bum.hong@pwc.com

PwC

William Mah
Partner, Malaysia
william.mah@pwc.com
Ching Chuan Ong
Partner, Malaysia
Ching.chuan.ong@pwc.com
Thailand, Laos, Cambodia
Sinsiri Thangsombat
Thailand, Cambodia, Laos LIBOR
Leader, Partner, Thailand
sinsiri.thangsombat@pwc.com

Carl J Dunton
Partner, Singapore Legalcarl.j.dunton@pwclegal.com.sg
Philippines
Alvin Dave Pusing
Philippines LIBOR Co-Lead
Director, Philippines
alvin.dave.pusing@pwc.com

Zaldy Aguirre
Philippines LIBOR Co-Lead
Partner, Philippines
zaldy.aguirre@pwc.com

Michelle A Taylor
HK LIBOR Legal Lead
Partner, Tiang and Partners
michelle.a.taylor@tiangandpartners.com

TaiwanEric Lin
Taiwan LIBOR Leader
Managing Director, Taiwan
eric.h.lin@tw.pwc.com
Hung-lieh Liang
Partner, Taiwan
Hung-lieh.liang@tw.pwc.com
Ellen Kuo
Partner, Taiwan
Ellen.kuo@tw.pwc.com

Andrew Bowen
Partner, New Zealandandrew.r.bowen@pwc.com

David Wake
Partner, Indonesia
david.wake@id.pwc.com
VietnamStephen Hogg
Partner, New Zealandstephen.c.hogg@pwc.com
China
Jimmy Leung
China LIBOR Leader
Partner, China
jimmy.leung@cn.pwc.com

Dinh Hong Hanh
Vietnam LIBOR Leader
Partner, Vietnam
dinh.hong.hanh@pwc.com

Visit us online at:www.pwc.com/LIBOR

Xing Zhou
Partner, China
xing.zhou@cn.pwc.com

Yan HuPartner, China
Yan.y.hu@cn.pwc.com
Song (David) Hu
Senior Manager, China
david.s.hu@cn.pwc.com

December 202028

Thank you
www.pwc.com/© 2020 PwC. All rights reserved. PwC refers to the PwC network member firms and/or their specified subsidiaries in Japan, and may sometimes referto the PwC network. Each of such firms and subsidiaries is a separate legal entity. Please see www.pwc.com/structure for further details.
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

Lead Sponsor

Endorser30

Product Presentations

Jing Gu
Head of Legal, Asia Pacific
ISDA

Mushtaq Kapasi
Managing Director –Chief Representative Asia
Pacific
ICMA

Adrian Cheng
Partner, FinanceSingapore
Herbert Smith Freehills

Adrianus Arditomo (Tommy)
Partner
Hiswara Bunjamin &Tandjung
31

Product Presentations on Derivatives:

Jing Gu
Head of Legal, Asia Pacific
ISDA

32

Benchmark Reform Update
December 16, 2020

Implementation of Fallbacks in Derivative Contracts
Jing Gu
Head of Legal, Asia Pacific
ISDA®ISDA is a registered trademark of the International Swaps and Derivatives Association, Inc.

Copyright © 2020 International Swaps and Derivatives Association, Inc.

ISDA IBOR Fallback UpdateOverview of alternative RFR identification
Working Groups in each jurisdiction have recommended robust, alternative RFRs to transition away from existing IBORs, the alternative RFRbenchmarks are overnight, whereas the current use of IBORs is largely in term rates.
JurisdictionUK

USWorking Group

Working Group on
Sterling Risk-Free
Reference Rates

Alternative Reference
Rates Committee

Alternative RFR

Reformed Sterling
Overnight Index
Average (SONIA)

Rate
administration

Bank of England

Secured OvernightFederal Reserve
Financing Rate (SOFR) Bank of New York

Characteristics
Secured vs.
Anticipatedunsecured publication date

Description

Currently being
published• Fully transaction-based• Encompasses a robust underlying market• Overnight, nearly risk-free reference rate
• Includes an expanded scope of transactions to incorporate overnight unsecured transactions
negotiated bilaterally and those arranged with brokers• Includes a volume-weighted trimmed mean

SecuredCurrently being
published• Fully transaction-based• Encompasses a robust underlying market• Overnight, nearly risk-free reference rate that correlates closely with other money market
rates• Covers multiple repo market segments, allowing for future market evolution• Fully transaction-based• Encompasses a robust underlying market• Overnight, nearly risk-free reference rate
• Includes a volume-weighted trimmed mean

Unsecured

Working Group on RiskFree Reference Rates for
the Euro Area

European ShortTerm Rate(€STR)

European Central
Bank

Unsecured

Currently being
published

Switzerland

The National Working
Group on CHF Reference
Rates

Swiss Average Rate
Overnight (SARON)SIX Swiss Exchange

SecuredCurrently being
published• Became the reference interbank overnight repo on 25 August 2009
• Secured rate that reflects interest paid on interbank overnight repoJapan

Study Group on Risk-Free
Reference Rates

Tokyo Overnight
Average Rate
(TONA)

Unsecured

Currently being
published• Fully transaction-based benchmark for the robust uncollateralized overnight call rate market• The Bank of Japan calculates and publishes the rate on a daily basis, using information
provided by money market brokers known as Tanshi• As an average, weighted by the volume of transactions corresponding to the rate

EuropeISDA IBORIBORFallback
FallbackUpdate
Update34 ISDABank of JapanISDA IBOR Fallbacks Supplement and Protocol• ISDA published the Protocol and finalised the Supplement to the 2006 ISDA Definitions (the Supplement) on 23
October 2020. https://www.isda.org/2020/10/23/isda-launches-ibor-fallbacks-supplement-and-protocol/• The Protocol will be effective three months later on 25 January 2021 (the Protocol Effective Date) and theSupplement will be deemed published and effective on the same date.
• The Supplement updates the Rate Options set out in the 2006 ISDA Definitions for certain interbank offered
rates (IBORs) to:– include new triggers and fallbacks in the event of a permanent cessation of those IBORs (and, for LIBOR
Rate Option, in the event of a ‘pre-cessation’ of LIBOR Rate Option). Each Rate Option will first fall back toa term adjusted risk-free rate for the relevant currency plus a spread and then to further specific fallbacks
for each currency;– include discontinued rates maturities provisions, which contemplate interpolation if one or more IBOR
tenors are withdrawn or, in respect of LIBOR, become non-representative; and– provide specific adjustments for Calculation Periods to which ‘Linear Interpolation’ is specified to apply.
• New derivative contracts that incorporate the 2006 ISDA Definitions from 25 January 2021 onwards will
incorporate the 2006 ISDA Definitions as amended by the Supplement.
• The Protocol allows parties to include the terms of the Supplement in their existing Protocol Covered
Documents.
35 ISDA IBOR Fallback Update

Rate Options amended by the Supplement
Currency

Relevant IBOR and Rate Options
Sterling LIBOR

GBP

GBP-LIBOR-BBA; GBP-LIBOR-BBA-Bloomberg
Swiss Franc LIBOR

CHF

CHF-LIBOR-BBA; CHF-LIBOR-BBA-Bloomberg
U.S. Dollar LIBOR

USD

USD-LIBOR-BBA; USD-LIBOR-BBA-Bloomberg
EUR LIBOR and EURIBOR

EUR

Underlying Rate for Fallback Rate
Reformed SONIA

SARON

SOFR

€STR

EUR-LIBOR-BBA; EUR-LIBOR-BBA-Bloomberg; EUR-EURIBOR-Reuters
JPY LIBOR, Yen TIBOR and Euroyen TIBOR
JPY

JPY-LIBOR-FRASETT; JPY-LIBOR-BBA; JPY-LIBOR-BBA-Bloomberg; JPY-TIBOR-17097; JPY-TIBOR-TIBM (All Banks)Bloomberg; JPY-TIBOR-ZTIBOR

AUD

CAD

HKD

SGD

THB

36 ISDA IBOR Fallback Update

BBSW
AUD-BBR-AUBBSW; AUD-BBR-BBSW; AUD-BBR-BBSW-Bloomberg
CDOR
CAD-BA-CDOR; CAD-BA-CDOR-Bloomberg
HIBOR
HKD-HIBOR-HKAB; HKD-HIBOR-HKAB-Bloomberg
SOR

SGD-SOR-VWAP
THBFIX
THB-THBFIX-Reuters

TONA

AONIA

CORRA

HONIA

Fallback to be based on USD/SGD FX transactions and SOFR

Fallback to be based on USD/THB FX transactions and SOFRIBOR Fallbacks: ISDA’s Work – Fallback Rate•

A number of key Asian benchmarks are synthetic benchmarks derived by applying a forward FX curve to the USD LIBOR
curve. When USD LIBOR is no longer available after the end of 2021, the sustainability of these benchmarks is in doubt:• Key benchmarks are: SOR (Singapore); THBFIX (Thailand); MIFOR (India) and PHIREF (Philippines).
• Planning for the cessation of LIBOR is led by the respective administrators and regulators of these benchmarks. Some have
replacement rates for new transactions identified and transition timelines in place (SOR and THBFIX), whereas others are
yet to identify the replacement rates.

• ISDA IBOR Fallback Protocol and Supplement cover SOR and THBFIX• Links to the National RFR Working Groups in the APAC region••

https://www.bot.or.th/Thai/FinancialMarkets/Pages/ReferenceInterestAndEndOfUseLIBOR.aspx
https://www.abs.org.sg/benchmark-rates/about-sora•

https://www.tma.org.hk/en_market_LIBOR.aspx•

https://afma.com.au/ibor_transformation_working_grouphttps://www.isda.org/2020/05/11/benchmark-reform-and-transition-from-libor/•https://www.boj.or.jp/en/paym/market/jpy_cmte/index.htm/

37 ISDA IBOR Fallback Update

Scope of the Supplement• The Supplement is a Supplement to the 2006 ISDA Definitions that:– updates the Rate Options to include new triggers and fallbacks in the event of a permanent cessation and, for LIBOR
Rate Options, non-representativeness of the relevant rate. Each Rate Option will first fall back to a published fallback
rate calculated based on a term adjusted risk-free rate (“RFR”) for the relevant currency plus a spread and then to further
specific fallbacks if that published fallback rate is discontinued. The Supplement amends the following Sections in the2006 ISDA Definitions:–7.1(w)(i) (“GBP-LIBOR-BBA”); 7.1(w)(ii) (“GBP-LIBOR-BBA-Bloomberg”); 7.1(y)(i) (“CHF-LIBOR-BBA”); 7.1(y)(ii) (“CHF-LIBOR-BBA-Bloomberg”); 7.1(ab)(xxii)(“USD-LIBOR-BBA”); 7.1(ab)(xxiii) (“USD-LIBOR-BBA-Bloomberg”); 7.1(f)(v) (“EUR-LIBOR-BBA”); 7.1(f)(vi) (“EUR-LIBOR-BBA-Bloomberg”); 7.1(f)(i) (“EUREURIBOR-Reuters”); 7.1(l)(iii) (“JPY-LIBOR-FRASETT”); 7.1(l)(iv) (“JPY-LIBOR-BBA”); 7.1(l)(v) (“JPY-LIBOR-BBA-Bloomberg”); 7.1(l)(xviii) (“JPY-TIBOR-17097” );7.1(l)(viii) (“JPY-TIBOR-TIBM (All Banks)-Bloomberg”); 7.1(l)(ix) (“JPY-TIBOR-ZTIBOR”); 7.1(a)(iii) (“AUD-BBR-AUBBSW”); 7.1(a)(iv) (“AUD-BBR-BBSW”);
7.1(a)(v) (“AUD-BBR-BBSW-Bloomberg”); 7.1(b)(i) (“CAD-BA-CDOR”); 7.1(b)(ii) (“CAD-BA-CDOR-Bloomberg”); 7.1(g)(iii) (“HKD-HIBOR-HKAB”); 7.1(g)(iv)(“HKD-HIBOR-HKAB-Bloomberg”); 7.1(t)(iii) (“SGD-SOR-VWAP”); and 7.1(aa)(i) (“THB-THBFIX-Reuters”).

– a statement identifying the objective triggers that would activate the selected fallbacks (the trigger defined as ‘Index
Cessation Event’). The fallbacks will not apply until the actual discontinuation of the relevant IBOR (if that is after theannouncement date). This date is defined as the “Index Cessation Effective Date”.
– a description of the fallbacks that would apply upon the occurrence of that trigger, which will be:i.

the relevant RFR adjusted using methodologies to account for (A) the fact that the RFR is an overnight rate and (B)the various premia included within the IBOR; andii.

if the relevant RFR is permanently discontinued, one or more further fallbacks.

38 ISDA IBOR Fallback Update

How the new fallbacks work in practice• The RFRs for each currency are adjusted (1) to reflect the fact that the interbank offered rate (“IBOR”) is a term rateand (2) to factor in the bank credit risk premia and other factors embedded in the IBOR.
– The RFRs are term-adjusted using the compounded setting in arrears rate approach and the spread adjustment
is calculated using the five-year historical median approach.
– The compounded setting in arrears rate is the RFR observed over a period (generally equivalent to the relevant IBOR
tenor) and compounded daily. The period over which the RFR is observed is backward-shifted to allow for the rate to
generally be known prior to the relevant payment date.
– The five-year historical median approach to the spread adjustment is based on the median of the differences between
the IBOR and the compounded RFR for that tenor calculated over a static lookback period of five years prior to the Index
Cessation Event. The spread adjustment will be added to the compounded setting in arrears rate (but will not becompounded itself).
• Bloomberg Index Services Limited (“BISL”) is producing and publishing the compounded setting in arrears rate, the spreadadjustment and the “all in” fallback rate (i.e. the compounded setting in arrears rate plus the spread adjustment) for all
relevant IBORs except for SOR and THBFIX. BISL currently publishes this information on an “indicative” basis and will continue
to publish the information on an ongoing basis after a trigger event occurs (although the spread adjustment will be frozen
after that date). The fallbacks for SOR and THBFIX are published by ABS and Bank of Thailand respectively.

39 ISDA IBOR Fallback Update

SOR and TBHFIX Fallbacks
SOR and THBFIX Rate Options are also updated pursuant to the Supplement. USD LIBOR is a component in the calculationof SOR and THBFIX and therefore a permanent cessation or non-representativeness of USD LIBOR will impact thecalculation of these Rate Options. The new fallbacks for these rates are based on actual transactions in the USD/SGD or
USD/THB FX swap market and a USD interest rate calculated by reference to the fallback rate produced for USD LIBOR, i.e., .
Fallback Rate (SOFR)▪ each is a “LIBOR Rate Option” as defined in the Supplement• Index Cessation Event (Permanent cessation and pre-cessation of USD LIBOR) and Index Cessation Event
Effective Date (i.e., the first date on which SOR/THBFIX is no longer provided)▪ Fallback Rate (SOR) is published by ABS and Fallback Rate (THBFIX) is published by Bank of Thailand▪ Fallback to Fallback Rate (THBFIX) – BOT Recommended Rate
▪ a new Section 7.10 and 7.11 are added for SOR and THBFIX▪ Section 8.5 (Application of Discontinued Rates Maturities Provisions) is disapplied for SOR and THBFIX“Fallback Rate (THBFIX)” means the rate based on actual transactions in the U.S. Dollar/Thai Baht foreign exchange swap

market and a U.S. Dollar interest rate calculated by reference to “Fallback Rate (SOFR)” (as set out in the definition of “USDLIBORBBA”) including any fallback rate that may apply pursuant to that definition for a period of the Designated Maturity
provided by the Bank of Thailand (or a successor provider), as the provider of Fallback Rate (THBFIX), on the Fallback Rate
(THBFIX) Screen (or by other means) or provided to, and published by, authorized distributors.
provider)40 ISDA IBOR Fallback Update

What documents are within the scope of the Protocol?
• The amendments contemplated by the Protocol are actually made to Protocol Covered Documents on the later of the (i) the Implementation Dateand (ii) the Protocol Effective Date (January 25, 2021).
• The Protocol enables parties to introduce the new fallbacks included in the Supplement in existing ISDA Master Agreements, ISDA Credit Support
Documents and Confirmations, provided they are Protocol Covered Documents. Protocol Covered Documents are documents which fulfil the below
criteria for Protocol Covered Master Agreements, Protocol Covered Credit Support Documents or Protocol Covered Confirmations.
• The Protocol also applies to certain non-ISDA master agreements and non-ISDA credit support documents between adhering parties, provided theysatisfy the criteria in the definition of Protocol Covered Documents. Such documents are listed in the Protocol as Additional Master Agreements
and Additional Credit Support Documents.
Protocol Covered Master Agreement

Protocol Covered Credit Support Document

Protocol Covered Confirmation

An ISDA Master Agreement or Additional Master
Agreement entered into by adhering parties that is dated
before the Protocol Effective Date or, if later, the date ofacceptance by ISDA of an Adherence Letter from the laterof the two adhering parties to adhere, that:An ISDA Credit Support Document or Additional Credit
Support Document entered into by adhering parties
that is dated before the Protocol Effective Date or, if
later, the date of acceptance by ISDA of an Adherence
Letter from the later of the two adhering parties toadhere, that:

A confirmation entered into by adhering parties that isdated before the Protocol Effective Date or, if later, thedate of acceptance by ISDA of an Adherence Letterfrom the later of the two adhering parties to adhere,
that:1) incorporates a Covered ISDA Definitions Booklet (e.g.
the 2006 ISDA Definitions);
2) references an IBOR “as defined” in or otherwise
provides that the IBOR has the meaning given in a
Covered ISDA Definitions Booklet (e.g. GBP-LIBORBBA, as defined in the 2000 ISDA Definitions); and/or
3) references an IBOR howsoever defined (e.g. LIBOR).

41 ISDA IBOR Fallback Update1) incorporates a Covered ISDA Definitions Booklet;2) references an IBOR “as defined” in, or otherwise
provides that the IBOR has the meaning given in, aCovered ISDA Definitions Booklet; and/or
3) references an IBOR howsoever defined.

1) supplements, forms part of and is subject to, or isotherwise governed by, a Master Agreement andincorporates a Covered ISDA Definitions Booklet;
2) supplements, forms part of and is subject to, or
otherwise governed by a Master Agreement andreferences an IBOR “as defined” in, or otherwise
provides that the IBOR has the meaning given in, aCovered ISDA Definitions Booklet; and/or
3) supplements, forms part of and is subject to, or isotherwise governed by, a Master Agreement andreferences an IBOR howsoever defined.

Bilateral Templates
ISDA has published the following templates relating to the application of the Protocol, which allow parties to:

Bilaterally adopt theProtocolLong form

Short form

42•

Form of amendment agreement•

Form of amendment agreement•

Enables parties to amend one or more of their existing
documents to incorporate by reference the terms of the
Attachment to the Protocol and to include additional terms,
including from templates published separately by ISDA, tosupplement the terms of the Protocol or to amend its scope•

Enables parties to amend one or more of their existing
documents to incorporate the relevant terms of the Attachment
to the Protocol and to include additional terms, including from
templates published separately by ISDA, to supplement theterms of the Protocol or to amend its scope•

Both a Principal version and an Agency version have been
published•

Includes the text of the Attachment to the Protocol in full•

Both a Principal version and an Agency version have been
published

ISDA
Conference:
ISDA Virtual
IBOR Fallback
Update Understanding the New IBOR Fallbacks

Bilateral Templates (cont.)

Amend the terms of the Protocol inexisting agreements

43•

Form of amendment agreement•

Enables parties who have adhered to the Protocol to amend the scope and terms of the Protocol in relation to one or moreexisting confirmations, existing master agreements or existing credit support documents that are Protocol Covered
Documents by including additional template language published separately by ISDA in the form of amendment agreement•

Both a Principal version and an Agency version have been published

ISDA
Conference:
ISDA Virtual
IBOR Fallback
Update Understanding the New IBOR Fallbacks

Bilateral Templates (cont.)

Include additional documents
within the scope of the Protocol

Disapply the ‘pre-cessation’ trigger
set out in the Protocol in existing
agreements:•

Template language (not a form ofamendment agreement)•

Template language (not a form ofamendment agreement)•

Enables parties to include one or moreexisting master agreements or existing
credit support documents (that are not
Protocol Covered Documents) within
the scope of the Protocol as “Additional
Master Agreements” or “Additional
Credit Support Documents”•

Enables parties to disapply the ‘precessation’ trigger that is ‘hardwired’
into the ‘Index Cessation Event’ trigger
and in related provisions in some or all
documents that are amended by theProtocol44

ISDA
Conference:
ISDA Virtual
IBOR Fallback
Update Understanding the New IBOR Fallbacks

Apply the terms of the Protocol to new agreementsthat do not incorporate the 2006 ISDA Definitions anddisapply the ‘pre-cessation’ trigger set out in the
Protocol•Template language (not a form of amendment
agreement)•

Enables parties to (i) apply the terms of the Protocol
to their new confirmations, master agreements or
credit support documents that do not incorporate
the 2006 ISDA Definitions and (ii) if they choose to doso, disapply the ‘pre-cessation’ trigger that is‘hardwired’ into the ‘Index Cessation Event’ trigger
and in related provisions in the Protocol

IBOR Fallbacks: Additional Information• ISDA/Bloomberg/Linklaters IBOR Fallbacks Fact Sheet• Understanding IBOR Benchmark Fallbacks• Benchmark Reform at a Glance• IBOR Transition Guide for Asia co-published by ISDA, ASIFMA, ICMA and APLMAAll of these materials, as well as additional information about ISDA’s work to implement IBOR fallbacks
and other benchmark reform initiatives, are available on the ISDA Benchmark Reform and Transition
from LIBOR webpage at https://www.isda.org/2020/05/11/benchmark-reform-and-transition-fromlibor/

45 ISDA IBOR Fallback Update

Product Presentations on Bonds:

Mushtaq Kapasi
Managing Director –Chief Representative Asia Pacific
ICMA

46

International Capital Market Association

ICMA

47

Adoption of risk-free rates in bond markets

A lot of progress has already been made with the adoption of new RFRs in bond markets:
US Dollar:•

Over US$650 billion of SOFR-linked FRNs•

Mainly SSAs, financial institutions•

Conventions are evolving•

SOFR Index now available

UK Sterling:•

Approx. 190 SONIA-linked FRNs and securitisations totalling approx. £90 billion•

Mainly SSAs, banks and building societies, with a broadening base of investors•

Same market conventions so far – “lag” approach to weighting, also favoured by the loan market•

SONIA Index made available in early August – but only compatible with “shift” approach to weighting•

Work still to be done on conventions

48 48

New contracts referencing IBORs : fallbacks

The official sector in the US and the UK encourage use of risk-free rates instead of
LIBOR in new bond issuance:•

If this is not possible, any new contracts referencing LIBOR and maturing beyond 2021 should
contain robust fallbacks to risk-free rates. (It has been announced that, subject toconsultation, the liquid USD-LIBOR tenors will continue until mid-2023, but the US authorities
have stated that they would only expect them to be used for legacy deals.)•

For new USD LIBOR FRN contracts, the ARRC (Alternative Reference Rates Committee) in the
US has produced a hardwired waterfall of fallbacks•

In the UK, fallbacks which address a permanent cessation or pre-cessation of IBORs have beenused since mid-2017. These are typically benchmark and currency agnostic•

GBP LIBOR-referencing FRN and securitisation transactions have all but ceased

49 49

The conversion of Legacy Bonds“Legacy Bonds” are bonds which reference LIBOR and are due to mature beyond theend of 2021, when LIBOR may no longer be available:•

It has been estimated that the global total of Legacy Bonds is more than US$800 billion
equivalent•Around 80% of that total references USD LIBOR•In the UK market, estimates suggest around 700 ISINs for GBP LIBOR Legacy Bonds acrossapprox. 430 deals•

If LIBOR is discontinued, many Legacy Bonds will fall back to a fixed rate, in accordance withthe fallbacks drafted into the documentation at a time when permanent discontinuation of therate would not have been anticipated•This may be commercially unpalatable

50 50

Options for Legacy Bonds – consent solicitation

The official sector in the US and the UK have continually stressed the increasing
importance of transitioning Legacy Bonds away from LIBOR:•

Unlike derivatives, bonds are contracts between multiple parties and are freely tradeable,
meaning the identity of the parties can change•

Bonds cannot be amended by way of adherence to an industry protocol•

Bonds usually contain provisions allowing the terms of the contract to be amended - thisrequires consent from bondholders by way of consent solicitation•

Depending on the governing law of the bond, the consent threshold required foramendments of interest rate provisions may be high (e.g. 75% under English law, and100% under NY law)•

Amending bonds by way of consent solicitation is a voluntary process, with no guarantee ofsuccess. It is also time-consuming and administratively burdensome for issuers and bondholders•

But in the UK, a number of consent solicitations have been successfully undertaken by financial
and corporate issuers

51 51

Options for Legacy Bonds - UK ‘tough legacy’ proposals

Some Legacy Bonds may fall into a ‘tough legacy’ bucket (i.e. cannot remove their relianceon LIBOR ahead of its anticipated discontinuation):• The UK Government put forward draft legislation in October 2020
• The FCA would be empowered to direct LIBOR’s administrator to change the methodology
for LIBOR in certain circumstances (so-called “synthetic LIBOR”)• There would be a general prohibition on the use of “synthetic LIBOR” by UK supervised
entities, subject to specific exemptions granted by the FCA• Some details still unknown, including what “synthetic LIBOR” will be and how long“synthetic LIBOR” will continue to exist• There is no guarantee that the FCA can or will exercise these powers, or that they will
suit all Legacy Bonds. So the FCA and Bank of England are urging parties to continue with“active transition” in order to retain control of the economic outcome

52 52

Options for Legacy Bonds - Possible US legislative proposal
In the US, where consent solicitation is more problematic, the ARRC has set out aproposal for possible NY state legislation for USD-LIBOR contracts:•

For contracts with no fallbacks, ARRC-recommended SOFR fallback rate + spread adjustment
would apply•

For contracts which fall back to a LIBOR-based rate, ARRC-recommended SOFR fallback rate +spread adjustment would apply•

For contracts where an agent has discretion to choose the new benchmark rate, the agent
would have protection under a “safe harbour” if the ARRC-recommended SOFR fallback rate +spread adjustment is chosen•

Counterparties making conforming changes to documentation to accommodate the transition
would also benefit from the safe harbour•

Parties would be able to mutually opt out•

It is not yet clear whether or when this will be enacted in NY law and how this would interact
in practice with the UK ‘tough legacy’ proposals and EU proposals

53 53

Options for Legacy Bonds - EU Benchmarks Regulation proposals

The EU co-legislators have reached a political agreement on proposed amendments to the EU
Benchmarks Regulation to address cessation of important benchmarks• The proposal will empower the European Commission to designate a statutory replacement rate and credit
adjustment spread (taking account of relevant industry working group recommendations) to ensure that when awidely used reference rate (such as LIBOR) is phased out, it does not cause disruption to the economy or harmfinancial stability in the EU• The statutory replacement rate will apply as a matter of law to certain contracts and securities• It would seem that bonds governed by New York law or English law are likely to be out-of-scope, depending on theimplementation of the New York and UK legislative proposals

54 54Other options for Legacy Bonds

Other options for Legacy Bonds include:•

Buy-backs, exchange offers or other liability management exercises•

Allowing existing fallbacks to operate without amendment (as a result of which, many FRNs
will become fixed rate unless the FCA is given, and exercises, powers to amend LIBOR
methodology, as outlined above)

55 55

Product Presentations:

Adrian Cheng
Partner, FinanceSingapore
Herbert Smith Freehills

Adrianus Arditomo (Tommy)
Partner
Hiswara Bunjamin &Tandjung

56

LIBOR Discontinuation
16 December 2020
Adrian Cheng, Partner, +65 6868 8029, adrian.cheng@hsf.com
Adrianus Adritomo (Tommy), Partner, +62 21 3973 6188, adrianus.adritomo@hbtlaw.com

Agenda• Indonesian market update• Loans markets documentation• Focus on LMA RFR Exposure Drafts• APLMA update• Derivatives markets documentation• Focus on the ISDA Supplement and Protocol• Bond documentation• Market conventions for interest rate and consent solicitations// 58

Indonesian market update

IBOR Transition in Indonesian Loan Market•••

No specific laws/regulation in Indonesia
Other reference rates for Indonesian Rupiah published by Bank Indonesia are
Jakarta IBOR (JIBOR) and Indonesia Overnight Index Average (IndONIA)
Documentation// 60

Loan markets documentation

Existing loan contracts: existing fallbacks andreplacement of screen rate provisions
Existing fallbacks:••

Whatever the applicable fallback, likely to have “winners” and “losers” as aresult of transition from LIBORAdvisable to amend legacy contracts, but complicated by absence of an
acceptable alternative and the fact that amendment clauses often require
unanimous consent of syndicate lenders and borrower

Replacement of Screen Rate provisions: an “agreement to agree”:•

Provides a mechanism for parties to a syndicated facility agreement to agree
a replacement benchmark rate using a lower consent threshold (i.e. typically
Majority Lenders rather than all Lenders)// 62New loan contracts: LMA Exposure Drafts
LMA published two Exposure Drafts in September 2019•(1) Sterling loans and (2) USD loans•

The referenced floating rates are derived from the respective RFRs that are to
replace sterling LIBOR (SONIA) and USD LIBOR (SOFR)•

RFR quotations relating to an interest period are compounded and averaged inarrear// 63

APLMA Updates• Exposure drafts– USD SOFR
– Compounded methodology– Simple methodology– Guidance note
• Comments from market participants by early December• Drafting rate switching documents// 64

Amending legacy loans

LMA rate selection
agreement• Standard form
• Sets commercial terms• Signed by requisite
lenders and obligors• Allows company andagent to document theamendment agreement
to the relevant loan

Amendment andrestatement of originalloan agreement• Documents terms
agreed in rate selection
agreement (a dual-stepprocess)• Alternatively could gostraight to this stage (asingle step process)// 65

Amendment considerations
Costs

Legal opinions
Amendment
considerations

Effect on security and guarantees

Timing, particularly where there is alinked swap// 66

Derivate markets documentation

ISDA Protocol and Supplement
ISDA will soon publish*:• Supplement no. 70 to the 2006 Definitions– to make amendments to 2006 ISDA
Definitions to incorporate the fallbacks
which will take effect from a future
effective date; and• ISDA 2020 Fallbacks Protocol– which will facilitate incorporating thoseamendments into legacy derivative
contracts if both parties elect to do so.
*Publication expected following approval from US
DoJ and competition approval in other jurisdictions
Protocol and Supplement will become effective
several months after launch to encourage adoption,
likely to be January 2021
- Impact on pre-cessation trigger

The Supplement – for new contracts••

Will amend the 2006 ISDA Definitions.
Introduces robust fallbacks to the existing
LIBOR rates by deleting references to those
rates and replacing them with references tothe relevant LIBOR rate until the occurrenceof an Index Cessation Event, with an active
transition to the Adjusted RFR (and further
fallbacks)
The Protocol – for legacy contracts• Intended to facilitate amendments to include
the fallbacks in legacy derivatives contracts.
• Adherence will amend a wide range of
documents, including master agreements,
credit support documents, confirmations,Global Master Repurchase Agreements andGlobal Master Securities Lending
Agreements.
• Will be completely voluntary and only amend
contracts between two adhering parties.
• Soft pressure from regulators to adhere “inescrow’ in the initial period between
announcement of the Protocol and official
launch to provide momentum at launch.
// 68

ISDA Protocol and Supplement
Triggers for fallbacks to apply : Cessation and pre-cessation
The fallbacks will apply upon either:• the actual date that the relevant LIBOR rate ceases to be published (the “cessation trigger”); or• an announcement by the relevant regulator of the benchmark administrator that the LIBOR rate has ceased (or will
at some specified future date cease) to be representative (the “pre-cessation trigger”).
Adjustment spread fixed on Index Cessation Event
Transactions continue on IBOR terms until Index Cessation Event for Relevant IBOR
• ISDA documents include hardwired switch by referencing new definition for IBOR in 2006 Definitions (withhardwired fallback to RFR published on Bloomberg Screen)• Non-ISDA documents achieve same outcome by incorporating equivalent fallbacks in longhand
RFRs subject to further fallbacks• Other official published RFR rates• Ultimate end point of central banks base rate// 69

Potential issues with the Protocol

Are there
issues with theProtocol?

• Not a perfect fix - the spread adjustment, for instance, is unlikely to mitigate entirely the valuetransfer which will occur upon the fallbacks being triggered• Adherence voluntary – many counterparts will not adhere for logistical or other reasons• Protocol not appropriate for products linked to, or hedging, products in other markets where
different fallback mechanisms are available or may be pursued- ISDA Bilateral Templates / Publication of rates for cash products• Protocol will make amendments to transactions – consents required• Protocol not appropriate for “non-linear” products (swaptions/x-ccy swaps/options)- ISDA non-linear products publication / ARRC guidance• Some contracts will need to be amended other than through the Protocol (eg CSAs
referencing EONIA).

What is thealternative?

• ISDA have produced some bilateral templates which will assist with this process by facilitating
bilateral amendments to contracts between non-adhering parties.
• Excluding certain transactions and agreements• Removing pre-cessation triggers// 70

Bond documentation

Debt Capital Markets: New Issues

New Issues• All new sterling bond issues in the form of floating rate notes have for some time beenreferencing SONIA rather than LIBOR.
• £21 billion in 56 transaction in the first half of 2020.
• There are still some USD LIBOR issuances but SOFR volumes are increasing.

Calculatinginterest(shift v lag)

• Lag: SONIA compounded in arrears over an interest period, with a margin added, anda “lag” (or "lookback”) in respect of each interest period, so that the SONIA rate used
to calculate a rate for each day in an interest period is based on the SONIA rate for 5days prior• Shift: Similar to lag but compounding formula in the “shift” approach weights the
SONIA rate to account for calendar days when the SONIA rate is not publishedaccording to the number of days that apply in the observation period (whereas the“lag” approach weights the SONIA rate according to the number of days that apply in
the interest period)

SONIA
Compounded
Index• SONIA index (published by the BoE in August) will be compatible with the shift method
rather than the lag method.
• It is expected that new SONIA bond issues will increasingly reference the SONIA
Compounded Index because it should standardise and simplify the method of
calculating SONIA-linked instruments and could be referenced in documentation.
• Two recent issues (Sept) from EIB and RBC using the Compounded Index.
// 72

DCM: Fallback provisions
Previous fallbacks: Often a variation on “reference banks”
methodology found in LMA and ISDA documentation. Would default
to a fixed rate on permanent cessation of LIBOR.

Current fallbacks: Post 2017, benchmark discontinuation
language included. Usual language envisages the issuer
appointing an independent adviser to select a replacement rate
and an adjustment spread to be applied to such rate, in each case,on the basis of (a) any recommendations made by relevant official
bodies or (b) if no such recommendations have been made,customary market practice. More recently, some clauses have a
pre-cessation trigger event, being a statement of
unrepresentativeness of the original benchmark by the regulator of
the benchmark administrator.
For the adjustment spread, the Sterling RFR Working Group issued
a statement this year recommending the use of the historical fiveyear median spread adjustment methodology when calculating thecredit adjustment spread which should then be applied to the
SONIA rate.

// 73

Debt Capital Markets: Tough Legacy Bonds

Tough legacy

Consent
solicitations

Legislative
fix vs. Active
transition• The latest estimates of legacy sterling LIBOR bonds maturing after the end of 2021 are of theorder of 315 FRNs and 170 securitisations with 560 tranches, with a total value of around £110
billion.
• Maturing bonds will reduce the scale of the problem in time, but it has been estimated that onlyaround 30% of legacy bonds by value fall due for maturity in 2022 and 2023. A significant
proportion of legacy bonds mature beyond 2030.

• Consent solicitations facilitate the move away from LIBOR by an issuer seeking bondholder
consent in order to amend terms and conditions.
• Can be a time consuming, costly and in some cases unsuccessful process.
• So far we haven’t seen that many in the vanilla DCM space but this is changing. For example,
in September, Lloyds sought consent to transition its additional tier 1 (AT1) securities to
SONIA• Some hope that legislative fix will be a solution however authorities have made clear thatlegislation should not be viewed as a substitute for negotiated amendments: “The Government
agrees with the RFRWG’s Tough Legacy Taskforce that active transition of legacy contracts
remains of key importance and provides the best route to certainty for parties to contracts
referencing LIBOR. Parties who rely on regulatory action, enabled by the legislation the
Government plans to bring forward, will not have control over the economic terms of that
action. Moreover regulatory action may not be able to address all issues or be practicable inall circumstances, for example where a methodology change is not feasible, or would notprotect consumers or market integrity. This reinforces the importance of parties who cantransition away from LIBOR doing so on terms that they themselves agree with theircounterparties.”// 74

Disclaimer

The contents of this publication, current at the date of publication set out in this document, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal
advice about your specific circumstances should always be sought separately before taking any action based on this publication.
Herbert Smith Freehills LLP and its affiliated and subsidiary businesses and firms and Herbert Smith Freehills, an Australian Partnership, are separate member firms of the international legal practice known as Herbert
Smith Freehills.
© Herbert Smith Freehills 2020// 76

Lead Sponsor

Endorser77

Data and Infrastructure Preparedness: Practical Challenges of IBOR
Transition:

Edmund Lee
OTC Data Strategy Manager, Asia PacificBloomberg L.P

78

Data and Infrastructure Preparedness:
Practical Challenges on IBOR Transition
Edmund Lee
Data Strategy
Asia Pacific, Bloomberg L.P.
echlee@Bloomberg.net

16th December 2020

Impact Across Firms' Workflows - The LIBOR Transition Lifecycle
After LIBOR cessation

1

4❖ All fallbacks triggered, fallback
calculations needed

Market informationand trade execution❖ Flexible rate calculation❖ Pricing, execution, valuation, andrisk for new rates supported forbusiness as usual activity❖ All securities fallback, use fallback
data to manage and track

Transition phase

Understand alternative rates, analyse and prepareInterest calculations,product pricing,valuation and scenarios
New rates curves
fully embedded,
flexibility to support
portfolio calculation
and analytics

Pricing, liquidity (and otherrelevant up-to-date info), andexecution capability❖ Accurate and extensive sources of
information on new rates, transition
activity and data
❖ For many bond/loan securities, varied
fallback, need to understand fallback
data❖ Understand and analyse current andfuture exposure, apply transition
scenarios

2

3

Trade / manage new products

Fallback data
❖ Fallbacks may be triggered, fallback
calculations needed❖ Understand actual and potential
risk/valuation impacts as transition
scenarios crystallise❖ Securities may fallback, use fallback
data to manage and track80

Fallback calculations

Market reliance on thecalculations

Large universe of existing
securities for which clear
understanding of fallback
required❖ Pricing, execution, valuation, risk
and scenarios supported throughthe eco-system❖ Compounding methodologies canvary, flexible bespoke calculation
tools may be neededData Analytics for IBOR Transition
Portfolio Level Analysis

SOFR

Custom Applications
via MARS API

Deal Level Analysis

Data-sets specific questions•

What new data sets are required as we transition to the new RFRs•

How will RFR data evolve as liquidity shifts over transition life cycle•

Will term rates be available and what if not? How do build new curves.

Assess data in systems readiness by testing the following:•

Enhance analytical models, risk and valuation models and scenario analysis
across enterprise systems to work on RFR•

Impact of discounting change on treasury and downstream enterprise systems

INDONIA81

Infrastructure Support For Securities
Custom Loans Application

SOFR

INDONIA
MARS
API

EONC<GO>

Data-sets specific questions•

How and where to locate information on fallback provisions for cash products and keep to date on consent
solicitation exercises.

•

Adapt global instruments like FRN, Loans, Mortgages to use new RFR rates

Assess readiness by considering•

Are calculators and system support for accrued interest and cash flows for RFR cash products ready andable to handle various spread calculation framework•

Is Enterprise system ready to book new and value “IBOR/RFR based Loans” and integrate
Loans contract
Python,support for transition life cycle
C++,•

Point in time support / additional data fields for historical and go forward analysis.

82

Java, etc.

Floating rate loans on new RFR indices such as
SOFR, ESTR and EONIA pose challenges foranalytics such as accrued interest and effective
rate computations due to the complex nature of
day count, compounding method and observation
shifts.

Planning for Transition
LIBOR is used as an input into various calculations, systems, and models for operations and administration acrossbusiness units.

83

Impact Assessment – Where to Begin
Challenges arise as market participants mobilize to identify technology gaps with handling new data sets, analytics,
valuation models. And it’s impact on core banking system.

84

Data and Infrastructure - Quantify Valuation Impact in Libor Transition
Preparation required across all asset classes: cash, derivatives, and loans
DATA
Data
ISDA
• ISDA Rule Book & Technical
notes

DATA
Infrastructure

Fallback Language

Risk Systems• Daily refreshed fallback
language Data for 154,000
cash securities• Loans• CCP PAI from Fed Funds to
SOFR (Oct 2020)• Migration of Bilateral CSA• LIBOR Transition analysis• Derivative Structuring

Fallback• ISDA-BISL• Fallback, Spread Adjustments
and Adjusted Rates

85

Country Updates• Risk Free Rate Solutions
Analytics• Derivative Structuring of
RFR Instruments

Data• Reference Data
• RFR Benchmark Data
• RFR Interest Rate Curves• Where is LIBOR used
• How will RM units haveaccess to fallback and RFR
data.

New Calculations• RFR Loans Calculator• Different type of RFR
payment conventions

Electronic Trading• Electronic Execution for RFR
Derivatives
RFR Adoption• FRN Issuance• Loans Issuance• RFR OTC TradedAvailable Today: ISDA Fallback Data•

Official ISDA IBOR Fallback Rates, calculated byBloomberg Index Services Limited. Visit FBAK<GO> or
https://www.bloomberg.com/professional/solution/libortransition/

ISDA<GO>FBAK<GO>•

86

Standardized fallback language developed by ISDA forderivatives contracts is a positive step, offering the industry
certainty.

Summary: Benchmark Transition Prepareness
1. Data

Fallback data forderivatives &cash fallback
language

2. Infrastructure.
Inventory &Systems

3. Communication

87

Cessation
scenarios andimpact analysis

Strategy basedon assessmentof legal andoperational
options

RFR curve andterm rates?

Accuracy, complianceof data used inmodels andcomplianceHandle multi curve
regime and RFR
compound factors,
coupons andcalculations

Clientcommunicationand disclosures

PAI and
CSA
repapering

Continuous
engagement withclients on risk,
plans,
preferences

Implement, test
and production

Transition
implementation
planningIndustry
discussions andclientparticipation

Thank You
The data included in these materials are for illustrative purposes only. The BLOOMBERGTERMINAL service and Bloomberg data products (the “Services”) are owned and distributed byBloomberg Finance L.P. (“BFLP”) except (i) in Argentina, Australia and certain jurisdictions in
the Pacific islands, Bermuda, China, India, Japan, Korea and New Zealand, where Bloomberg
L.P. and its subsidiaries (“BLP”) distribute these products, and (ii) in Singapore and thejurisdictions serviced by Bloomberg’s Singapore office, where a subsidiary of BFLP distributes
these products. BLP provides BFLP and its subsidiaries with global marketing and operational
support and service. Certain features, functions, products and services are available only tosophisticated investors and only where permitted. BFLP, BLP and their affiliates do notguarantee the accuracy of prices or other information in the Services. Nothing in the Services
shall constitute or be construed as an offering of financial instruments by BFLP, BLP or theiraffiliates, or as investment advice or recommendations by BFLP, BLP or their affiliates of aninvestment strategy or whether or not to “buy”, “sell” or “hold” an investment. Information
available via the Services should not be considered as information sufficient upon which to basean investment decision. The following are trademarks and service marks of BFLP, a Delaware
limited partnership, or its subsidiaries: BLOOMBERG, BLOOMBERG ANYWHERE,BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG PROFESSIONAL,
BLOOMBERG TERMINAL and BLOOMBERG.COM. Absence of any trademark or service markfrom this list does not waive Bloomberg’s intellectual property rights in that name, mark or logo.
All rights reserved. © 2020 Bloomberg.

Lead Sponsor

Endorser89

Banking Panel on Implementation/Conduct Issues

Branko Windoe
Senior Executive Vice
President
Bank Central Asia

Tony
Deputy Director, Basel andInternational Banking,
Banking Research andRegulation Department
Indonesian Financial Service
Authority

Tiak-Peow Phua
Executive Director, LiborTransition,
Conduct, Financial Crime andComplianceStandard Chartered

Ryan Page
Proposition Specialist
Refinitiv (moderator)

90

Lead Sponsor

Endorser91

Accounting and Taxation Issues:

David Wake
Advisor – PwC Indonesia Financial Services Leader
PwC

92

LIBOR and Reference
Rate Reform
Accounting and Tax
considerations
ASIFMA Webinar
16 December 202093

Finance heatmap
Accounting impacts
PSAK 71 (IFRS 9)
Contract modifications
Is modification “substantial”?
–

PSAK 71(IFRS 9) Hedge
accounting
Assess quantum and methods ofdetermining hedge effectivenessand updates to hedge
documentation

PSAK 68 (IFRS 13)
Fair Value methodology
Assess IBOR
replacement rates for use
in valuations /treasury
systems

Balance sheet
implications
Line items where IBOR
discounting is used, eg -•IASB/DSAK IAI relief
Assess IASB relief across loan modification and hedge accounting

PSAK 73 Leases
with variable payments
For variable lease
payments linked to an
IBOR, updates to thediscount rate and thelease liability when the
cash flows change

Derecognition required if asubstantial modification••

Impairment
assessments
Pension liabilities
Revenue customer
contract assets•

Reinsurance contracts•

Provisions•

Lease liabilities

Disclosures

Tax

Risks and
uncertainties
disclosure
Appropriate disclosurefor investors andcustomers - annual
report, debt
programme /prospectus, any
impacted customer
contract disclosures

Contract
amendments andintra-grouptransactions
Assess if contract
amendments give rise
to a ‘disposal’ for tax
purposes, and assessinterest basis on intragroup arrangements

Operational impacts
Rate collections
Assess collection and frequency of
published indicesInterest accruals
Assess implications of dailyrates on interest accruals and
MIS views

Settlements
Assess implications of backward looking rate
and new conventions on settlement systems
and processes

Treasury
Assess economic ‘mis-match’ or basis risks,and FX risk, from new rate change

Impact Key

PwC

High

MediumLow

94

DSAK IAI / IASB relief – Loan modifications
Phase 1 (Pre IBOR replacement)

Phase 2 (Post IBOR replacement)•

Amendments to PSAK 71, PSAK 55, PSAK 60 (IFRS 9, IAS
39, IFRS 7) – financial instruments,••

Ratified in ID on 24 June 2020. Effective for year ends
commencing on or after 1 January 2020

Amendments to PSAK 71, PSAK 55, PSAK 60 – financial
instruments, PSAK 62 (IFRS 4) – Insurance contracts and PSAK 73(IFRS 16) - Leases•

Draft ratified in ID on 16 Oct 2020. Effective for year ends
commencing after 1 January 2021 with early application permitted.

•

Addresses effects of changes in contractual cash flows
or hedging relationships that arise from replacing thebenchmark interest rate with a new alternative reference
rate; or changes in the basis for determining contractual
cash flows of financial assets, financial liabilities andlease liabilities.

•

Applies only to changes required by the reform of thebenchmark interest rates for financial instruments andhedging relationships•

PwC

Provides temporary relief from applying specifichedge accounting requirements to relationships
affected by the uncertainty arising from IBOR
reform:•Reliefs over the highly probable requirement andrisk components;•

Ineffectiveness still needs to be measured andrecorded in the income statement under bothIFRS9 and IAS39, but reliefs are provided overprospective and retrospective assessments during
the period of IBOR uncertainty; and•Disclosures required in the financial statements.
95

IASB relief – Loan modifications
Existing requirement

What is the relief?

• A change in contractual cashflows generally triggers a
P&L outcome (or de-recognition event)• Practical expedient: If the change is required by IBOR
reform, modified cashflows are discounted at the revised
contract EIR• This arises as new modified cashflows are required tobe discounted at the original contract effective
interest rate (EIR)→ No change to carrying amount, and no P&L• If there are other modifications, first apply this practical
expedient for IBOR related changes (refer to case study 2)

2 concepts for relief:
The change is a direct consequence of interest
rate benchmark reform. eg –(a) Contract terms amended for new rate(b) Change in method of calculation of benchmark
rate (but no contract change)(c) Existing fallback clause is triggered

AND

Contractual cash flows are ‘economicallyequivalent’ to previous, eg –(a) replace existing rate with new rate plus fixed
spread(b) change to reset periods and dates to implement
the reform(c) addition of fallback provisions
Judgement required

PwC

96

Relief – Loan modifications 2 step approach
Q: change in the basis for determining
the contractual cash flows of thefinancial asset or financial liability?

No

Continue to account for
the financial instrument
as usualYes
Do the changes qualify for thepractical expedient in its entirety?

No

Yes
Apply the practical expedient andupdate the effective interest rate basedon the alternative benchmark rate

Changes required by IBOR reform
First apply the practical expedient and update
the effective interest rate based on thealternative benchmark rate

Additional changes to which the practical
expedient does not apply
Do the additional changes result in derecognition?
Yes
Apply IFRS 9
derecognition
principles
PwC

No

Apply pp 5.4.3 orB5.4.6 of IFRS 9

97

Loan modifications – case study 1
Scenario 1: change only as a result of IBOR reform.
Original contract

Amended contract*

Loan amount

100bn

100bn

Interest rate

3m JIBOR + 100bps

IndoNIA + Fixed spread +100bpsPayment convention

Interest set in advance(3m)

Compounded in arrears (with 2
day observation shift)

Maturity

Jan 2023

Jan 2023

Contractual interest rate

4.85% p.a

4.75% p.aEIR

4.85% p.a

4.75% p.a

NPV (gross carrying
amount)

100bn

100bn

Analysis

Impact: Update the effective interest rate for changes - NO P&L impact*amendment could be in the form of a new agreement with an amendment directly to interest rate which will be effectivefrom amendment date or update to the fallback rate which would be generally effective from the date it is announced that
the JIBOR rate is “no longer representative”.
PwC

98Loan modifications – case study 2
Scenario 2: modification also include changes not a result of IBOR reform.
i.e. due to COVID-19 borrower requested an interest free window and term
extension for final payment.
Original contract

Amended contract

Loan amount

100bn

100bn

Interest rate

3m JIBOR + 100bps

IndoNIA + Fixed spread + 100bps(one year interest free window in 2021)

Payment convention

Interest set inadvance (3m)Compounded in arrears (2 day
observation shift)

Maturity

Jan 2023

Jan 2024

Contractual interest rate

4.85% p.a

4.75% p.a (from 2022)

EIR

4.85% p.a

4.75% p.a

NPV (gross carrying
amount)100bn

96.5bnAnalysis

Difference between the original and new NPV reflected in P&L (3.5bn) as the value ofthe interest free window
PwC

99

IASB relief – Hedge accounting
End when a contractual change eliminates
IBOR uncertainty or hedge relationshipterminated.

Early application permitted – but disclosure
required.

Phase 1 – pre RFR transition

Termination of hedge
relationshipPhase 2 – post RFR transition
1 Jan 2020

1 Jan 2021

For hedging relationship directly affected by
the reform, assume the reform does not
impact:For hedging relationships directly affected by the reform:
1.

required amendment to hedge documentation

1. highly probable requirement (cash flow hedges)

2.

assume no discontinuation of hedge or designation of a newhedging relationship3.

assume new reference rate can be designated as a specific risk
if separately identifiable within 24 months.

2. prospective assessment
3. separately identifiable requirement for risk
component

PwC

100

Hedge Accounting
To stay substantially fully matched you will have to achieve all of the following…

Same rate that the loan andderivative are calculated on(e.g. JIBOR, IndONIA, etc)

1

Transition timing: loan andderivative transit to new rate at thesame time2

Subtantially Fully matched?

4Interest
Calculation
mechanism of loan and derivativeis the same (e.g. “forward looking”
or “backward looking
compounding”)

PwC

3
No other modifications to loan.

101

Hedge Accounting
Careful of mismatches and issues! e.g.
• Loan contract – defaults to a rate which is not matched on the swap side
• Forward looking vs backward looking rates• Not just rates, but also calculation basis, payment mechanisms
Even if hedge accounting may continue, ineffectiveness must still be
accounted for in the P/L.
Sufficient liquidity for Term IndoNIA to emerge?

PwC

102

Sharia accounting considerations
Sharia principle of ‘gharar’ requires upfront certainty on all fundamental
contract terms in asset-based transactions, including certainty of pricing.

- Backward looking RFRs
- Fallback provisions to Cost of Funds rate?

PwC

103

Tax considerations
No special tax laws or rulings on this topic in Indonesia to-date
Key questions•

Does a reference rate change to an existing contract cause a deemed taxable exchange?

•

What are the impacts of credit spread adjustments and one-time payments?

•

How could IBOR transition impact transfer pricing and intercompany transactions

Opportunities and considerations•

For existing instruments with scheduled maturities beyond 2021 that provide for LIBOR based payments, it is
widely anticipated that these contracts will be modified or settled early in conjunction with a replacement
contract. Counterparties should carefully consider whether the new terms could result in a taxable exchange.

•

How will product needs change for financial institutions and their clients, and what are the tax implicationsof these changes. Can changes be optimized for tax?

•

Modification of an instrument or contract to replace an IBOR must account for the differences between the
IBOR and new reference rate, and may include an additional one-time payment because of a reduction inperiodic payments. The source and character of this payment could result in taxable events.

•

Group debt arrangements – consider tax transfer pricing or interest restriction rules. Will the new rate beconsidered arm’s length?

PwC

104

Thank you
pwc.com© 2019 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as
the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any
services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No
member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or
PwCIL in any way.

105

Lead Sponsor

Endorser106

Closing Remarks:

Steve Dean
President Director
Refinitiv Indonesia

107

ASIFMA: Indonesia
IBOR Transition
Closing Comments
Steve Dean / Refinitiv
16 December, 2020

Ever Evolving content for LIBOR Transition<IBOR> Transition App in Eikon
OIS (Underlying based on RFR rate)
Currency

IBOR
Instrument

RFR
Instrument

RFR
Instrument
Code

RFR
Publication
time (Local)

08:00
EST/EDT

Example Fallback
RIC

Refinitiv
Composite

Specialist

OIS Zero curve

Term Rates

USDSROIS=TWEB, RCM, 0#USDSROISZ=TRDL, SX, TPSR, TRHKR

Futures.SOFR,
SOFR1MAVG=,SOFR3MAVG=,SOFR6MAVG=

0#S1R: ,0#SRA:.SONIA

0#SON:.SAR1MC,.SAR3MC,.SAR6MC0#SARON:

USD

LIBOR USDSOFRUSDSOFR=

GBP

LIBOR GBP

SONIA

SONIAOSR=

09:00 London
GBPONFSRF=ISDATime

GBPOIS=GBPOIS=ICAP, TTKL,TWEB, TRDL, MBGL

0#GBPOISZ=R

CHF

LIBOR CHF

SARON

SARON.S

18:00 CETCHFSNFSRF=ISDACHFOIS=CHFOIS=ICAP, BGCP,
TWMK,

0#CHFOISZ=R

JPY

LIBOR JPYTONA

JPONMU=RR

10:00 JSTJPYSNFSRF=ISDAJPYOIS=JPYOIS=ICAP, SMKR,
YMPR, TKFX

0#JPYOISZ=R

AUD

BBSW

RBA CashRate

AUCASH=RB
AA

09:00
AEST/AEDTAU1MBAF=ISDAAUDOIS=

AUDOIS=ICAA, SMKR,
TTKA, BGCP, FMD

0#AUDOISZ=R

CAD

CDOR

CORRA

CORRA=

09:00 ET

CA1MBAFIXF=ISDACADOIS=CADOIS=ICAP, SMKR,
FMD, GCMN, TRDL

0#CADOISZ=R

0#CRA:EUREURIBOR€STREUROSTR=

08:00 CETEURIBORSWDF=ISDAEURESTOIS=EURESTOIS=ICAP, TRDL, 0#EURESTOISZ
BGCP, TPEU
=R

0#EON:

HKD

HIBOR

HONIA

HONIA=

17:00 Hong
Kong Time

HIHKDONDF=ISDAHKDOIS=

109

USDONFSRF=ISDA

CompoundIndex

HKDOIS=TRHK, PREA,NITCGBPTRR=RFTB

JPYTRR=

Solutions for Loan/Bond markets
Compounding Approaches, until term structure for RFR evolves•

Based on the type of cash product or derivative, there could be multiple ways to put in a payment structure•

Key Decision variables : What is the Observation Period ? What is the Interest Period ? What is the lag / lockout ?

Payment Delay with Lockout

Lookback

Backward Shift•

Interest Rate value frozen a few
days before the payment date•

Interest Rate value lagged by acertain number of business days•

Interest Rate values and Interest
Period is shifted backwards•

Floating Rate Notes (2-5 days)•

Standard Lag is 5 business days•

Standard Shift is 5 business days•

SOFR-referenced Floating Notes•

SONIA/SORA-referenced Floating
Notes

•

Similar to OIS market conventions

Interest Period

Interest Period

Interest Period
Shift

Observation Period
Rate Freeze
110

Payment Date

Observation Period

Observation PeriodLag

Solutions for derivatives
Price new RFR based derivatives and quantify the impact of transition
Use new RFR OIS Zero Coupon based Curves in Calculators

Click the Curves in Zero
Curve and change to OISSOFR (USD), €STR (EUR)
or SONIA (GBP)111

A big thank you to all the speakers,
panelists and participants today112Thank you for attending!
We hope to see you at our next event:www.asifma.org/events

113