Regulatory Alerts2021-12-10
Circular No. 06/EFI/2021, of December 10 - Procedures Arising from the Substitution of LIBOR in the Financial Market
The Banco de Moçambique mandates that credit institutions and financial companies implement specific transition procedures to replace the discontinuing LIBOR reference rate by December 31, 2021. Financial entities must conduct detailed contract reviews, transition to agreed alternative Risk-Free Rates, assess potential financial impacts, and verify their conduct risk management frameworks. Additionally, institutions are required to provide clear, timely, and compliant client communications, present fair alternatives aligned with regulatory fee structures, and maintain robust monitoring programs for global LIBOR developments.
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FINANCIAL STABILITY DEPARTMENT CIRCULAR NO. 06/EFI/2021 Maputo, December 10, 2021
SUBJECT: PROCEDURES ARISING FROM THE SUBSTITUTION OF LIBOR IN THE FINANCIAL MARKET
Given the discontinuation of the adoption of Libor (London Interbank Offered Rate) as a reference rate in the international financial market on December 31, 2021, and considering its impact on financial transactions carried out by credit institutions and financial companies in their operations, it is necessary to establish guidelines that must be observed for an effective transition. In this regard, the Banco de Moçambique, pursuant to item d) of paragraph 2 of Article 37 of Law No. 1/92, of January 3 – Organic Law of the Banco de Moçambique, determines:
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In the process of replacing Libor by December 31, 2021, credit institutions and financial companies, in their respective operations with clients, must observe, at a minimum, the following aspects:
a) Detailed analysis of contracts to safeguard against changes resulting from the discontinuation of Libor; b) Timely transition of Libor to relevant alternative reference rates (Risk Free Rates – RFRs) for all financial contracts, provided they are agreed upon by the parties; c) Awareness of potential gains and losses arising from the transition; d) Verification of the conduct risk management framework to ensure it is equipped to handle all risks related to Libor, or the need for a separate program specifically dedicated to managing the transition;
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e) Individualized and timely communication to clients, specifying the implications of this transition;
f) Communication of contractual changes to clients in an objective and clear manner;
g) Adherence to principles and regulations governing market conduct, notably the Code of Conduct for Credit Institutions and Financial Companies approved by Notice No. 2/GBM/2018, of April 16;
h) Presentation of any alternatives in a fair and reasonable manner, including associated benefits, costs, and risks, which must align with the fee and charge regime for financial services and its corresponding nomenclature approved by Notice No. 13/GBM/2017, of June 9, as amended by Notice No. 19/GBM/2017, of December 26;
i) Communication without reduction or concealment of relevant information, in compliance with the Regulation on Advertising of Financial Products and Services approved by Notice No. 3/GBM/2018, of April 18;
j) Establishment of a robust monitoring program, which must remain updated, regarding developments in the jurisdictions of the respective currencies affected by the discontinuation of *Libor*.
2. This Circular takes effect from December 10, 2021.
Any doubts arising from the interpretation and application of this Circular must be submitted to the Conduct Supervision Department of the Banco de Moçambique.
BANCO DE MOÇAMBIQUE Financial Stability Department Jamal Luís Omar Administrator