Bank Negara Malaysia (BNM) recently issued the enhanced standards on Klibor Rate Setting Policy Document that outlines the phasing out of the nine-month Klibor rate effective Jan, 1 2017.

In a statement, BNM said the policy document incorporated measures to further strengthen the integrity of the Klibor reference rate.

These measures were being introduced following a review of the Klibor rate-fixing process and cover broadly the areas of governance, oversight, accountability, and transparency, it said.

These measures will align the Policy Document with international best practices under the Principles of Financial Benchmarks issued by the International Organisation of Securities Commission.

"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 nine-month Klibor rate-setting process," BNM said.

During the transitional period beginning Jan 1, 2017, all market participants with existing contractual agreements referencing the nine-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 nine-month Klibor tenure.

BNM said the central bank in consultation with the financial industry would work together to ensure the smooth implementation of the Klibor rate-setting framework.

Further guidance, where appropriate, would be provided to market participants during this transition phase from the discontinued nine-month Klibor tenure to alternative mechanisms, it added.

- Bernama