It will have potential profit and loss, tax and accounting implications on market participants. Migration of legacy contracts and adoption of new documentation involving hundreds of thousands of clients would be another complex exercise. All these 1/4  BIS central bankers' speeches  issues will cut across different segments of the financial market, from derivatives, to bonds, to loans and many others. The implications may also vary greatly across different jurisdictions given the different market structure and legal environment. Therefore, industry associations such as ISDA have an important role to play, in helping to address these wideranging issues with a global and industry-wide perspective. Global banks should take the lead 8. Likewise, international banks, which have operations across many jurisdictions, will be better placed to help shape the path for transition for the banking sector. As we all know, IBORs are used in nearly every aspect of their business – from trading, to risk management, to pricing and valuation. Preparing for the transition means they need to develop the necessary operational and system capability for their global operations, probably dealing with multiple alternative reference rates at the same time. I can see this is a very onerous and resource-intensive process. But then, given the quantity and diversity of financial contracts on their book, and their presence and market knowledge in various jurisdictions, these global banks should be best equipped to take the lead in devising a comprehensive transition plan.
It may be relatively easy to discuss the transition plans with counterparties that are also financial institutions, as everyone is more or less on the same page. But IBORs are also used by banks’ different clients, both corporations and individuals. There is a big gap among these IBOR users on the awareness of the benchmark reform, so the situation becomes less straightforward. 12. Therefore, client education is another vital task. Banks should begin outreach to their clients, and educate them about the benchmark transition early. This could help to minimise misunderstanding and costly litigation in the future. Raising market awareness in Hong Kong 13. Closer to home in Hong Kong, the Treasury Markets Association (TMA) has been working with bank representatives on benchmark reform for many years. More recently it has intensified its reach-out to other sectors. It has set up a Working Group to engage a wider spectrum of stakeholders including accountants, lawyers, bank customers and industry 2/4  BIS central bankers' speeches  associations like ISDA. It is important that different market participants understand what the transition will mean for their business operations and how they should prepare for these changes. The Working Group is now looking at issues like the implications on accounting and the transition of cash products. It will further engage stakeholders to explore means of encouraging the adoption of alternative reference rates in their day-to-day transactions and business activities. 14. At the same time, the HKMA supervisors has also been actively engaging banks.