IBOR Reforms

Overview

Interest rate benchmarks including the London Interbank Offered Rate (LIBOR), the Euro Interbank Offered Rate (EURIBOR), the Euro Overnight Index Average (EONIA) and some other Interbank Offered Rates (IBORs) have been or are being replaced or reformed. These changes are expected to cause at least some of these benchmarks to perform differently to the way they have in the past or to disappear. This may impact the HSBC products and services you use and those we provide in the future, such as derivatives, overdrafts and loans (including mortgages), securitisations and deposits, where interest rates of these can be fixed or alternatively calculated by reference to benchmark rates.

For several years, the financial services industry has been transitioning away from IBORs towards ‘Risk-Free Rates’ also known as ‘Near Risk-Free Rates’ (“RFRs”)¹ and other alternative rates.

The following rates have either ceased to be published or to be representative and their use has been prohibited for new contracts:

Sterling (GBP), Euro (EUR), Swiss Franc (CHF), Yen (JPY) LIBOR and US Dollar (USD) LIBOR settings in all tenors;
Euro Overnight Index Average (EONIA);
Canadian Dollar Offered Rate (CDOR) 6-month and 12-month settings;
Thai Baht Interest Rate Fixing (THBFIX);
Singapore Interbank Offered Rate (SIBOR) 6-month and 12-month settings;
Mumbai Interbank Forward Offer Rate (MIFOR);
Singapore Swap Offer Rate (SOR);
Philippine Interbank Reference Rate (PHIREF).

The use of the following rates has also been prohibited for new contracts:

Singapore Interbank Offered Rate (SIBOR) 1-month and 3-month settings. These SIBOR settings will cease after 31 December 2024.
Canadian Dollar Offered Rate (CDOR) 1-month, 2-month and 3-month settings. These CDOR settings will cease to be published after 28 June 2024.

The information of this page provides an overview of the changes as at 1 July 2023 and reflects HSBC’s current understanding and interpretation of the new landscape. It does not constitute any form of advice or recommendation. Our clients should seek guidance from their professional advisors on the possible implications of the changes from a financial, legal, accountancy or tax perspective.

Frequently Asked Questions

Regulatory authorities and RFR working groups comprising public and private sector representatives in several jurisdictions, including the US, UK, Europe, Switzerland, Japan and Singapore (amongst others), have identified replacement benchmarks, and have developed strategies for transition, as shown in the table below:

Currency	Reference Rate	Alternate Reference Rate	Anticipated Approach
CHF	CHF LIBOR	SARON (Swiss Average Rate Overnight)	Transition to SARON
EUR	EONIA	€STR (Euro Short-Term Rate)	Transition to €STR
EUR	EURIBOR or EUR LIBOR	Reformed EURIBOR	Multiple rate approach - transition to €STR or reformed EURIBOR. The reformed EURIBOR is confirmed to continue alongside €STR for the foreseeable future.
GBP	GBP LIBOR	SONIA (Sterling Overnight Index Average)	Transition to SONIA or Term SONIA (limited use of Term SONIA in specific use cases)
GBP	GBP LIBOR	Term SONIA
JPY	JPY LIBOR	TONAR (Tokyo Overnight Average Rate), the RFR for JPY also called TONA	Multiple rate approach Japan is implementing a multi-rate approach with TONAR and its term version called TORF being promoted where appropriate, while the TIBOR reforms should ensure that JPY TIBOR can continue to be used.
	JPY LIBOR	TORF (Tokyo Term Risk Free Rate).
	TIBOR (Japanese Yen TIBOR and Euroyen TIBOR)	TIBOR (Tokyo Interbank Offered Rate) is being reformed.
USD	USD LIBOR	SOFR (Secured Overnight Financing Rate)	Transition to SOFR or Term SOFR
USD	USD LIBOR	Term SOFR	Transition to SOFR or Term SOFR
SGD	SGD SOR SIBOR	SORA (Singapore Overnight Rate Average)	Transition to SORA
CAD	CDOR	An updated version of the Canadian Overnight Repo Rate Average (CORRA), a pre-existing rate.	Transition to CORRA

The table above is not exhaustive and is provided for general information purposes only. Alternative rates other than those above may also be considered depending on products and currencies.

Most RFRs are backward-looking overnight rates which are calculated by reference to historic transaction data and are published on an overnight basis. They are administered by the central bank in the relevant jurisdiction. The IBORs are calculated by reference to daily submissions by panel banks. These daily submissions are often based on forward-looking estimates by the panel banks, whereas most replacement benchmark rates will be based on actual historic transactions.
Financial products using overnight rates either explicitly or implicitly use some kind of average of the overnight rate and not a single day’s reading of the rate in order to reduce the frequency of payments. Using an average of a series of overnight rates still accurately reflects movements over a given interest period. This is different to the IBORs which were forward-looking term rates (i.e. they were published in advance for seven interest periods ranging from overnight to 12 months).
Forward looking Term RFRs, which would allow to be fixed and available at the beginning of each interest period and quoted for a range of different maturities, are now available albeit not for all products as there may be regulatory restrictions to their use (e.g. Term SONIA) and not for all currencies, particularly those where there is no sufficiently active and liquid derivatives market (e.g. CHF SARON). Term RFRs provide an indicative, forward-looking measurement of RFR rates, based on market expectations implied from relevant RFR derivatives markets. They include expectations of future level of interest rates but do not include any interbank credit premium.
Forward-looking Term SONIA is being published and made available in the market since January 2021 when ICE Benchmark Administration and Refinitiv finalised their methodologies and launched their respective term SONIA benchmarks. Both benchmarks are available in 1-month, 3-month, 6-month and 12-month tenors.
In April 2021 QUICK Benchmarks Inc. began publishing production rates for the Tokyo Term Risk Free Rate (TORF).
On 29 July 2021 the Alternative Reference Rates Committee (ARRC) formally recommended forward-looking SOFR term rates, which are administered by the CME Group, for use in certain products.

These developments are regarded as important milestones because term RFRs can provide certainty for calculating interest payments and other contractual payments in advance, which may be important for some products and market participants.

The UK Financial Conduct Authority (FCA) announced that it would require publication of 1-, 3- and 6-month USD LIBOR settings using an unrepresentative ‘synthetic’ methodology, with an anticipated end date of 30 September 2024. Synthetic USD LIBOR is equal to Term Secured Overnight Financing Rate (SOFR) plus the applicable adjustment spread calculated as per the industry agreed methodology proposed by the International Swaps and Derivatives Association (ISDA). The publication of Synthetic USD LIBOR allows non-US law governed USD LIBOR products that lack contractual fallback provisions additional time to transition to a replacement rate, therefore e.g. legacy USD LIBOR bonds maturing after 30 June 2023 may continue to reference a Synthetic USD LIBOR. The FCA reiterated that Synthetic LIBOR is “only a temporary bridge, and synthetic settings will not continue simply for the convenience of those who could have transitioned their contracts but have not done so”. It is therefore a temporary solution and should not be relied upon to transition away from LIBOR. See the FCA’s announcement for more details.

The FCA has also decided to continue to publish 3-month Synthetic GBP LIBOR until the end of March 2024. Synthetic GBP LIBOR is equal to Term SONIA plus ISDA Spread Adjustment.

HSBC has participated in a number of public and private sector working groups such as the Sterling Risk-Free Rate Working Group, the Alternative Reference Rates Committee in the United States and the Working Group on Euro Risk-Free Rates, each of which was responsible for identifying the preferred near risk-free rate for the relevant currency, and supporting the transition away from LIBOR rates. HSBC has also participated in industry body working groups such as the International Swaps and Derivatives Association, Inc. (ISDA) working groups on the IBORs and the EU Benchmark Regulation (BMR) to ensure our approach is aligned with industry practice.
HSBC is aware that the discontinuation of LIBOR or other IBORs may have impacted both its new and existing products and services and that the impact on clients, including other relevant parties, had to be carefully considered.
The majority of LIBOR-referencing products have already been successfully transitioned. We have conducted due diligence to assess how LIBOR and other IBORs are used in HSBC products and services and, where applicable, we have engaged with our clients to facilitate the transition to an alternative rate upon LIBOR cessation.
We have also enhanced our offering to make the products based on alternative reference rates available for our clients. The availability of these products will vary per currency, depending on the regulatory and industry developments. We have also monitored the transition plans of our third party product manufacturers to ensure that we remain compliant with the regulatory and industry recommendations.

These changes may have already impacted the HSBC products and services you currently use and those we provide in the future, including changes to interest payment and other obligations. The extent of the impact will depend on a range of factors such as the IBOR referenced, the fallbacks in the contract (if any), the date by when the changes will take effect and the nature of the product or service.

For example, following the permanent discontinuation of LIBOR and the adoption of an alternative benchmark for credit facilities, it is possible that the alternative benchmark may have resulted in changes to the amount payable under the facility. The impact of the changes may also vary depending on whether the relevant benchmark has been discontinued or if it is being reformed.

We are actively monitoring developments and are participating in industry and regulatory working groups. HSBC will continue to provide more detailed information to impacted clients once there is more certainty on which new benchmarks are being adopted, their methodology, their term structure and the transition process agreed at industry level.

For more information

We will periodically update this site and/or provide communications relating to the changes. In the meantime, if you require any further information, please contact your Relationship Manager.

If you would like more general information on interest rate reform and IBOR transition, the Financial Conduct Authority (FCA), the Bank of England, the U.S. Commodity Futures and Trading Commission
(CFTC), the Federal Reserve Bank of New York (FRBNY), the U.S. Alternative Reference Rates Committee (ARRC), the European Central Bank (ECB), the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO) and some of the working groups and industry bodies that are considering these issues have published information which can be found on their websites.

Financial regulations

¹ “Risk-Free Rates” or “Near Risk-Free Rates” (“RFRs”) are not truly free of risk and can rise or fall as a result of changing economic conditions and central bank policy decisions. ↩

The information on this site refers to services or products which are not available in certain locations, or which, in any relevant location, may have components, methods, structures and terms different from the ones described, as well as restrictions on client eligibility. Please contact a Relationship Manager for details of services and products that may be available to you.

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Nothing here is to be deemed an offer, solicitation, endorsement, or recommendation to buy or sell any general or specific product, service or security and should not be considered to constitute investment advice.

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Overview

Frequently Asked Questions

What are the replacement benchmarks?

What do we know about ‘Risk-Free Rates’?

What is Synthetic LIBOR?

What is HSBC doing about the changes?

What do these reforms mean for HSBC clients?

Financial regulations

Legal information

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