Bank Negara Malaysia recently issued enhanced standards on KLIBOR^[1] Rate Setting Policy Document (Policy Document) that incorporates measures to further strengthen the integrity of the KLIBOR reference rate. These measures are being introduced following a review of the KLIBOR rate fixing process and cover broadly, in the areas of governance, oversight, accountability and transparency. These measures will align the Policy Document with international best practices under the Principles of Financial Benchmarks issued by the International Organization of Securities Commission (IOSCO Principles).

This Policy Document also outlines the phasing out of the 9-month KLIBOR rate effective 1 January 2018. This measure is decided after industry's feedback and taking into consideration the limited market demand, relevancy and sufficiency of transactional data to support the 9-month KLIBOR rate setting process.

During the transitional period beginning 1 January 2017, all market participants with existing contractual agreements referencing the 9-month KLIBOR are expected to review their contracts to provide customers with alternative mechanisms. This may include the use of other benchmarks, interpolation of available KLIBOR tenures or any other mutually agreed mechanisms. New contractual agreements should no longer be referenced to the 9-month KLIBOR tenure.

The Bank in consultation with the financial industry will work together to ensure the smooth implementation of the KLIBOR rate setting framework. Further guidance, where appropriate, will be provided to market participants during this transition phase from the discontinued 9-month KLIBOR tenure to alternative mechanisms.

See also: KLIBOR Rate Setting

Bank Negara Malaysia
29 December 2016

^[1] KLIBOR refers to Kuala Lumpur Interbank Offered Rate