The Monetary Authority of Singapore (MAS) has signed a memorandum of understanding with the European Securities and Markets Authority (ESMA) which opens an avenue for firms in the EU to use Singapore's financial benchmarks under the EU's Benchmark Regulation.

The agreement between the two regulators also involves the sharing of information and supervisory activities related to financial benchmarks.

Following the agreement, firms in the EU may continue to use the Singapore Interbank Offered Rate (SIBOR) or the Singapore Dollar Swap Offer Rate (SOR) as reference rates in their financial contracts.

The signing of the MoU follows a decision by the European Commission last year to recognise Singapore's regulatory framework on financial benchmarks as equivalent to the requirements under the EU Benchmarks Regulation (BMR).

"The finalisation of the MoU with MAS is an important step towards the completion of the EU’s third country regime for benchmarks," said Steven Maijoor, chair of ESMA. "Regulators around the world are committed to the accuracy and reliability of key global benchmarks and this MoU will facilitate the achievement of these objectives."

MAS was the first regulator in the Asia-Pacific region to introduce its own financial benchmarks regulation in 2018, following international guidelines set by the International Organisation of Securities Commissions (IOSCO). It is a key requirement for a country to be granted equivalence status by the EU. Australia, Japan and South Korea have also introduced legislation to regulate financial benchmarks.

"This MoU is testament to the close working partnership between MAS and our EU counterparts," said Ong Chong Tee, deputy managing director at MAS. "The EU's equivalence decision affirms the robustness of Singapore's regulatory framework on financial benchmarks. This will promote greater cross-border connectivity between our respective financial markets to the benefit of both regions."

By early 2021, MAS is expecting to introduce the Singapore Overnight Rate Average (SORA) to replace SOR, the key interest rate benchmark used in Singapore for the pricing of Singapore dollar interest rate derivatives, commercial and retail loans as well as other financial products.

Singapore last year said it would move away from using the SOR rate as a benchmark in contracts as it is set based on US Dollar Libor, which is expected to be discontinued by the end of 2021. The UK Financial Conduct Authority, which regulates Libor, will not make banks submit the estimates from which it is calculated after that date, meaning it will cease to exist.

While the current coronavirus outbreak may cause some delay in the work to replace the various Libor rates with alternative reference rates, firms should still plan their work to replace rates in contracts based on the original end-2021 date, officials said.