Monday, 22nd March, 2021 – Manama, Kingdom of Bahrain: Islamic finance standard-setting body, the International Islamic Financial Market (IIFM) today released a White Paper on ‘Global Benchmark Rate Reforms and Implications of IBOR Transition for Islamic Finance’. Benchmark rate reform is a significant regulatory driven development in the international markets which will also have consequences for different segments of Islamic finance.
Globally, work on phasing out Inter-Bank Offered Rates (IBOR’s) and transition to Risk Free Rates (RFR’s) is now nearing completion by the various working groups in Europe, North America, Switzerland and Japan for currencies such as USD, EUR, GBP, CHF and JPY. The regulators in these jurisdictions are pushing the conventional financial services industry to start implementing RFR’s as the benchmark rate instead of IBOR’s and most of the IBOR’s fixing will cease to exist after 31st December 2021 while in few cases the final deadline will be June 2023.
The white paper compiled by IIFM is based on the contributions from leading financial institutions, accounting firms, law firms and few other market participants. It aims to create awareness and highlights the challenges posed particularly to Islamic financial product structures, transactions, documentation, accounting, credit and legal related matters. The paper also contains recommendations from the IIFM consultative meeting held end of 2020 with industry stakeholders which helped shape consensus on developing workable and unified solutions to overcome these challenges.
The white paper will serve as a basis in the development work to be undertaken by IIFM on this major transformation to RFR’s which will have an effect on new and legacy contracts, Islamic financing arrangements (syndicated and bilateral), hedging and capital market securities such as Sukuk. As a way forward, three (3) separate work streams for financing, hedging and Sukuk have been formed by IIFM consisting of leading institutions to deal with this important development in order to achieve practical solutions relating to IIFM mandated areas of focus. To read the white paper Click Here
Khalid Hamad Al Hamad, Chairman of IIFM said, “IBOR transition white paper contains valuable information from which the Islamic finance industry can benefit and work together with IIFM in developing unified benchmark rate transition related amendments in financial documentation as well as other related matters as per the IIFM mandate for the benefit of the industry globally”.
“IBOR transition has significant implications for the Islamic finance industry. IIFM has a critical role to play in bringing all stakeholders together and agreeing mutually acceptable solutions that aligns with Shari’ah requirements”, said Khurram Hilal, Managing Director-Head of Group Islamic Products at Standard Chartered Bank and Director on IIFM Board.