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Industry roundup: 25 March

ARRC provides update on forward-looking SOFR term rate

The Alternative Reference Rates Committee (ARRC) will not be in a position to recommend a forward-looking Secured Overnight Financing Rate (SOFR) term rate by mid-2021, and it encourages market participants to continue to transition from LIBOR using the tools available now. This decision reflects ongoing ARRC discussions, reports, and objectives, as well as the ARRC’s first SOFR Symposium which covered options for using SOFR.

In line with its 2020 Key Objectives, the ARRC established a term rate request for proposals (RFP) process to select an administrator of an ARRC-recommended forward-looking SOFR term rate to be published in the first half of 2021 if liquidity in SOFR derivatives markets developed sufficiently. Although submissions are being reviewed, the ARRC’s recommendation of an administrator was always contingent upon certain conditions being met - including the development of sufficient liquidity in SOFR derivatives markets, and developing recommendations for an appropriately limited scope of use for the term rate.

While trading activity in SOFR derivatives is growing, at this time, the ARRC believes that it is not yet in a position to recommend a term rate with confidence based on the current level of liquidity in SOFR derivatives markets.  In addition, the ARRC is still evaluating the limited set of cases in which it believes a term rate could be used.  Robust underlying activity and a limited scope of use over time are important conditions to help ensure that a recommended term rate does not reintroduce the vulnerabilities that first prompted the transition away from LIBOR.

US supervisory guidance encourages banks to cease entering into new contracts that use US dollar (USD) LIBOR as soon as practicable and in any event by 31 December 2021.  The ARRC cannot guarantee that it will be in a position to recommend an administrator that can produce a robust forward-looking term rate by the end of 2021. Accordingly, the ARRC urges market participants not to wait for a forward-looking term rate for new contracts, but to instead be prepared to use the tools available now, such as SOFR averages and index data that can be applied in advance or in arrears, as described in the User's Guide to SOFR.

 

Ecuador's Banco Internacional deploys Surecomp’s cloud-based digital trade finance solution

Surecomp, a provider of global trade finance and treasury solutions for banks and corporates, has announced that Banco Internacional has chosen to deploy its cloud-based trade finance as-a-service (TFaaS) solution.

In a move replicating a bank-wide transition to the cloud, the fifth largest bank in Ecuador has decided to undertake a trade finance process transformation to minimise friction, become API-enabled and to future-proof it ready for upcoming industry changes including the SWIFT SR2021 messaging standard transition. 

The solution provider says that TFaaS is a scalable digital experience supporting the full portfolio of instruments, allowing customers to apply, track, finance and collaborate throughout the entire trade finance transaction processing lifecycle. It also aims to minimise reliance on internal IT infrastructures and reduces cost of ownership.

“The decision to upgrade our trade finance process integrates it firmly with our overall cloud-first strategy,” explained Luis Orbe, vice president of Trade Finance at Banco Internacional. “This change helps reinforce our continued position as a leading trade finance provider in the country.”

 

Luminor Bank selects FIS for risk management operations 

Luminor Bank has selected a cloud-based balance sheet management solution from FIS, which should help the bank optimise liquidity and better manage risk as it continues its rapid expansion in the Baltic region.

Luminor Bank AS, which has nearly 900,000 clients, is the third largest provider of financial services in the Baltic banking market, and operates in Estonia, Latvia, and Lithuania.

The bank has selected the FIS Ambit Focus, an integrated balance sheet management solution. Based in the FIS private cloud, the solution provides simulation and stress scenario capabilities to manage risk and regulatory requirements across profitability, liquidity and solvency.

The solution will provide the bank with advanced tools for assessing the market risk of its financial instruments and enhancing stress testing capabilities, while helping Luminor Bank comply with regulatory requirements, including interest rate risk in the banking book (IRRBB).

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