MAS outlines plans for smooth transition to SORA in 2021

By October, they plan to release specific deadlines to cease SOR use in new financial products.

The Monetary Authority of Singapore (MAS) plans to step up supervisory engagement to ensure that banks are well-prepared to transition to the Singapore Overnight Rate Average (SORA) by 2021.

Speaking in a round table about SGD interest rate landscape changes, MAS managing director Jacqueline Loh said that they have conveyed their expectations to banks, and plan to intensify engagement to include systems readiness, legacy transition plans, and pace of adherence to industry guidance established by the Steering Committee on SOR transition to SORA (SC-STS).

Loh warned that lenders who failed to keep up with timelines potentially expose themselves to additional market, liquidity, operational, technology and legal risk. They can also expect to have more intensive supervisory engagement at the senior management level.

MAS and SC-STS will also release a guidance on specific deadlines to cease the usage of SOR in new financial products by October.

“SORA is the focal point in the new SGD interest rate landscape,” Loh told attendees of the virtual roundtable, later highlighting the move’s complexity as she called for banks and corporates to prepare for the transition.

Amongst challenges include transitioning legacy contracts, which include close to $1.4t notional value of outstanding SGD derivatives contracts referencing SOR, and around 12,000 SOR contracts in SGD cash markets amounting to $95b that will mature post-2021.

“A bank that adopts a “wait and see” attitude and leaves things till next year, is likely to find itself with too much on its plate before the end-2021 deadline.  This is something which we must avoid,” she added.

To complement banks’ individual efforts, MAS, ABS and SC-STS mentioned plans to collaborate with industry associations and MoneySense in order to roll out industry-wide public education programmes on SORA products and markets later in the year.

Loh also outlined plans to expand the SORA issuance programme following strong market response to MAS’ inaugural $500m SORA FRN issuance.  Loh said that they plan to increase the issuance sizes and lengthening the range of tenors. More details will be released by the end of the year.