New EIBOR Regulations

The Central Bank of the UAE (CBUAE) recently announced formal regulations regarding Interbank Rate Submissions (EIBOR Regulations) which is in line with the recommendations of the International Organization of Securities Commissions (IOSCO). The new EIBOR Regulations came in effect on 15 April 2018 and are expected to enhance governance, standardization, and transparency in rate setting process at EIBOR Panel Banks. The EIBOR Regulations also require the CBUAE to announce the EIBOR Advisory Committee (EAC). The membership of this committee and its terms of reference will be announced by the end of July 2018. The EAC will include all banks in the EIBOR Panel along with two non EIBOR Panel Banks and is expected to meet at least twice every year. The main task of the EAC will be to promote the implementation of EIBOR Regulations, review compliance, monitor its effectiveness and propose changes in regulations, if and when required.

EIBOR rates are to be fixed for tenors of overnight, 1 week, 1 month, 3 month, 6 month and 1 year.

Under new regulations, EIBOR Panel Banks are to rely, as much as possible, on the use of available transaction data from the day before. In absence of actual transaction data, panel banks are to follow a waterfall methodology based on below sequence:

1. Determining Factor 1 (DF1): Unsecured interbank transaction of greater than AED 20 million.
2. Determining Factor 2 (DF2): Unsecured wholesale deposits of greater than AED 20 million from GREs, corporates and NBFIs.
3. Determining Factor 3 (DF3): Internally developed expert judgement. This is expected to be adopted mostly in times of exceptional market events.

EIBOR Panel Banks are expected to have strong and clear governance in place for rate submissions. The ‘Maker’ of the rates is to be of sufficient experience and the ‘Checker’ of the rates is to be independent of sales and trading functions and is to be of sufficient seniority to challenge the Maker. An independent review of EIBOR submissions and processes used is to be done every month by the Risk Control function and a Compliance Report is to be submitted on quarterly basis. All files and documentation for EIBOR submissions are to be maintained for at least five years.

Panel Banks are required to appoint an independent auditor from a panel of audit firms nominated by the CBUAE. The CBUAE may from time to time carry out special examination of Panel Banks’ rate submission process.

Thomson Reuters has been appointed as the Calculation Agent for indefinite period. For calculation of daily EIBOR rates, the top and bottom quartile of rates submitted by the Panel Banks will be excluded and a mean calculated as an average of the remaining quotes submitted for each tenor. Data will be collected from the Panel Banks after 11am and published to five decimal points by 12.00 hours each working day in the UAE.

3m EIBOR Rate

Source: Bloomberg, Emirates NBD Research

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