Robust fallbacks required for BBSW
The Reserve Bank of Australia (RBA) has introduced new criteria that require robust fallbacks for bank-billed swap rate (BBSW) securities, following class actions that each of the big four banks faced in the US.
The new eligibility criteria for securities to be accepted as collateral in the RBA’s market operations included:
- Floating rate notes (FRNs) and marketed asset-backed securities issued on or after 1 December, 2022, that reference BBSW must include robust fallback provisions; and
- All self-securitisations, regardless of the date of issue, must include robust fallback provisions. The RBA would engage directly with self-securitisation issuers and give at least 12 months' notice before enforcing this requirement.
While eligibility criteria for FRNs and marketed asset-backed securities issued before 1 December, 2022, were unchanged, the RBA said issuers should strongly consider including robust fallbacks for such securities, depending on their length of time to maturity, as a matter of prudent risk management.
“These requirements are being introduced as part of global reforms to strengthen financial benchmarks and ensure they are used appropriately in the financial system. Financial regulators globally have been urging market participants to make financial products more robust by including fallback provisions to apply if the referenced benchmark rate is discontinue,” the RBA said.
RBA assistant governor (financial markets), Christopher Kent, said: “These new requirements – which have been flagged for some time – are an important step the RBA is taking to encourage further benchmark reform.
“Fallbacks provide important insurance when using any benchmark. If there's one thing that London Interbank Offered Rate (LIBOR) has shown us, it's that we shouldn't take existing benchmarks for granted.
“Although BBSW is currently a robust benchmark, this could change in the future so it is important that robust fallbacks are in place.”
Earlier this year, NAB, ANZ, the Commonwealth Bank, and Westpac last year all faced class actions regarding the trading of BBSW-based products with all four settling the class action.
Recommended for you
There is one specific risk that is a significantly higher concern for financial services directors compared to companies overall and is impacting their risk appetite, according to the AICD.
Global fund managers are shunning bonds, with the asset class seeing the largest drop in allocations in more than 20 years.
Australian Ethical has seen its funds under management reach $10 billion, driven by organic customer growth and superannuation contributions.
Financial advisers will have access to private equity investments run by WTW for the first time as it launches a pooled fund to provide savers with access to traditionally institutional assets.