C2FO Supplier Agreement
Terms & Conditions (“Terms”)
- Upon acceptance by you (“the Supplier”), these Terms constitute the terms agreed between you and The Hongkong and Shanghai Banking Corporation Limited, a company incorporated in Hong Kong (“the Bank”) in relation to the SCF programme provided by the Bank to GROUPE ADEO, a company incorporated UNDER NUMBER 358 200 913 WITH A REGISTERED ADDRESS AT 135 RUE SADI CARNOT, 59790 RONCHIN, FRANCE (“the Buyer”).
- Each reference to the Buyer below is a reference to the Buyer and/or, where referring to any communication or provision or receipt of information, its nominated service provider C2FO Ltd., a company registered in England, “Service Provider”) acting as the Buyer’s agent for making and receiving relevant communications referred to below. You have, or will, also agree to terms and conditions with the Service Provider (“Service Provider Terms”). The Service Provider Terms are separate terms between you and the Service Provider and are not in lieu of these Terms.
- You acknowledge and accept that your access to the platform of the Service Provider is provided by that Service Provider, acting as the Buyer’s agent and/or service provider, for the sole purpose of facilitating the supply chain finance scheme provided to the Buyer by the Bank. You further acknowledge and accept that none of the Service Provider’s platform or any related communication or action:
- is undertaken as or in connection with a service provided by HSBC Group to you; and/or
- should be taken to mean that you are entering into a business relationship with HSBC Group, or that HSBC Group is carrying out a transaction for you or on your behalf.
All activities undertaken by the Bank (including any communications sent by or received from the Bank) arise out of the supply chain finance scheme provided by the Bank to the Buyer and the Bank is, at all times, acting as the Buyer’s agent and/or service provider.
- The Buyer provides details to the Bank in a prescribed format for invoices it has approved for payment (“Approved Invoices”, each an “Approved Invoice”). The Buyer also advises the approved amount, Invoice Settlement Date (as defined below) and other additional information required in their agreement with the Bank to enable the Bank, at its discretion, to effect payment. Such information will be provided to the Bank by the Service Provider, typically only in instances where you have notified the Service Provider of a request for early payment. You can log in on the Service Provider’s platform, view Approved Invoices and make a request for early payment if you wish to (prior to7 days before the Invoice Settlement Date specified by the Buyer) or you may have confirmed to HSBC and/or the Service Provider that you wish to always and automatically request early payments in respect of Approved Invoices (the automatic request for early payment option).
- If the Bank elects (in its sole and absolute discretion) and in accordance with its agreement with the Buyer to make an early payment to you, it shall be the relevant approved amount less (i) fees or deductions notified to the Bank as being payable to the Service Provider and deductible from the approved amount (including the Service Provider Reduction as defined below), (ii) Early Payment Charge and the deductions set out in Section 8 and Section 10 below and (iii) any credit notes. Subject to the Bank exercising its discretion and without obligation placed upon the Bank, you may receive funds as early as the next Business Day following your request (including automatic request where relevant) for payment prior to the Invoice Settlement Date. If the Bank elects not to make early payment, the Service Provider may notify you.
- Any payment is at the sole and absolute discretion of the Bank for regulatory and other reasons and the Bank is under no obligation or commitment to make any payment. If you are not paid by the Invoice Settlement Date or you have queries relating to deductions and/or Invoice Settlement Dates, any such enquiries should be directed to the Buyer (or the Service Provider).
- All early payments shall be subject to an Early Payment Charge and the Service Provider Reduction that you have agreed to through the Service Provider’s platform (each as defined and calculated below) deducted from the approved amount before making payment. Other fees and charges (if any) will be deducted from the approved amount (and any relevant credit notes taken in to account) before making payment.
- All payments may be subject to: USD 15 wire transfer fee.
- Payments shall be made by the Bank on a non-recourse basis. Any and all cashflow rights transfer automatically to the Bank and you shall mark your books and computer records accordingly in relation to transferred rights acquired by the Bank in connection with the corresponding Approved Invoice.
- Fees and charges may change from time to time and will be notified to you in writing (which may include by email) and are in addition to any fees and charges you may incur with your account holding bank and/or intermediary banks.
- The Bank may terminate these Terms (or parts thereof) immediately on notice (effective from date of receipt). You may terminate these Terms upon written notice to and written acknowledgement from the Bank and the Service Provider. Any rights and obligations that accrued before termination will survive and all payments prior to termination will continue to be governed by these Terms.
- You may not assign or transfer these Terms or the right to receive payment from the Bank without the prior written consent of the Bank. The Bank may (i) assign or transfer any of its rights or obligations under these Terms, or (ii) enter into sub-participation arrangements and/or other risk mitigation in relation to these Terms, in each case with any person without your consent.
- The Bank may replace or make amendments to these Terms which will become effective on the expiry of 30 days’ notice to you. Any such notice may be given to you in writing, which may be by email or such website location as the Bank notifies you of from time to time. However, the Bank may, in exceptional circumstances, replace or make amendments to these Terms at any time in order to comply with any law or regulation, which will become effective immediately on notice to you.
- You agree that, unless you tell the Bank otherwise, the Bank or other members of the HSBC Group may contact you from time to time by post, email and/or telephone with information about the Bank’s or other members of the HSBC Group’s products and services that the Bank or other members of the HSBC Group think may be of interest to you. If you decide at any time that you do not wish to receive this information from the Bank or other members of the HSBC Group, please contact firstname.lastname@example.org. You understand that neither the Bank nor other members of the HSBC Group will disclose your details to third parties to allow them to market to you without your further consent.
- “Approved Currency” means at any given time, one of the following currencies:
United States dollars;
- “Benchmark Rate” means, USD (United States dollar), (a) the applicable SOFR Screen Rate published two US Banking Days before the date of payment (or such other time or day as determined by the Bank if the market practice differs); or (b) if the SOFR Screen Rate is not available for that interest period for a period of 5 US Banking Days (during which time the most recently available SOFR Screen Rate shall be used (to the extent there is one)) and a replacement for the SOFR Screen Rate has not been notified to you as a replacement Benchmark Rate, then the percentage rate per annum which is the aggregate of: (i) the Federal Bank Rate prevailing before the date of payment as determined by the Bank; and (ii) the applicable Federal Bank Rate Adjustment (rounded if necessary to four decimal places with 0.00005 being rounded upwards), if such rate is less than zero, the Benchmark Rate shall be deemed to be zero. EUR (Euro), “EURIBOR” means, in relation to any advance, the applicable Euro Screen Rate at or around 11:00 am Brussels time two Euro Business Days (or such other time or day as determined by the Bank if the market practice differs) before the proposed date of advance and, if any such rate is below zero, EURIBOR will be deemed to be zero. CNY (Chinese yuan), “CNH HIBOR” means, in relation to any advance, the applicable CNH Screen Rate at or around 11:00 am Hong Kong time on the proposed date of advance (or such other time or day if the market practice differs in the Hong Kong interbank market, as determined by the Bank), if any such rate is below zero, CNH HIBOR will in each case, if such rate is less than zero, the Benchmark Rate shall be deemed to be zero.
- “Business Day” means a day other than a Saturday or Sunday on which commercial banks are open for business in Hong Kong, unless commercial banks are required or authorised by law or executive order to be closed or on which a tropical cyclone warning no. 8 or above or a "black" rainstorm warning signal is hoisted in Hong Kong at any time between 9.00am and 5.00pm Hong Kong time.
- “CNH Screen Rate” means the CNH Relevant Administrator’s Interest Settlement Rate for CNH and for the relevant period displayed on the appropriate page of the Reuters screen provided that (a) if in the Bank’s sole determination its funding cost is in excess of CNH HIBOR, the Bank may specify the cost of funding any facility or financial arrangement; or (b) if the screen page is replaced, not available or such service ceases to be available, the Bank may specify another page or service displaying the appropriate rate.
- “CNH Relevant Administrator” means the Treasury Markets Association or any other person to whom the administrator function of the CNH HIBOR fixing process is transferred from time to time.
- “Early Payment Rate” means, unless the Bank notifies you of a different rate in writing, a percentage, calculated as the sum of (A) the percentage interest using the relevant Benchmark Rate on the date of payment of early payment for the relevant Approved Currency, USD plus (B) a margin of 0.8% or EUR plus (B) a margin of 0.65% or CNY plus (B) a margin of 0.65%
- ”Early Payment Charge” means, for each Approved Invoice paid prior to the Invoice Settlement Date confirmed by the Buyer, an amount equal to: (1) the approved amount (less any relevant credit notes applied, where relevant) confirmed by the Buyer multiplied by (2) the Early Payment Rate, divided by (3) a 360 or 365 day year as is determined by the Bank to be customary for the relevant currency in the local interbank market, multiplied by (4) the Term.
- “Euro Business Day” means any day on which TARGET2 is open for the settlement of payment in Euro.
- "Euro Screen Rate" means the Euro Relevant Administrator’s Interest Settlement Rate for Euro for the relevant period displayed on the appropriate page of the Reuters screen provided that (a) if in the Bank’s sole determination its funding cost is in excess of EURIBOR, the Bank may specify the cost of funding any facility or financial arrangement; or (b) if the screen page is replaced, not available or such service ceases to be available, the Bank may specify another page or service displaying the appropriate rate.
- “Euro Relevant Administrator” means the European Money Markets Institute or any other person to whom the administrator function of the EURIBOR fixing process is transferred from time to time.
- “Federal Bank Rate” means, for any day, (a) the short-term interest rate target set by the U.S. Federal Open Market Committee as published by the Federal Reserve Bank of New York from time to time; or (b) if that target is not a single figure, the arithmetic mean of: (i) the upper bound of the short-term interest rate target range set by the U.S. Federal Open Market Committee and published by the Federal Reserve Bank of New York; and (ii) the lower bound of that target range provided that a reference to a Central Bank Rate shall include any successor rate to, or replacement rate for, that rate.
- “Federal Bank Rate Adjustment” means, in relation to any payment date, the mean of the spreads (expressed as a percentage rate per annum) over the five most immediately preceding US Banking Days for which the SOFR Screen Rate has been published of: (a) the SOFR Screen Rate for that interest period on that US Banking Day; and (b) the Federal Bank Rate prevailing at close of business on that US Banking Day, as calculated by the Bank excluding the highest spread (and, if there is more than one highest spread, only one of those highest spreads) and lowest spread (or, if there is more than one lowest spread, only one of those lowest spreads).
- “HSBC Group” means HSBC Holdings plc and its subsidiaries and associate undertakings including any of their branches.
- “Invoice Settlement Date” means the date (which may differ from the invoice due date) identified by the Buyer (or determined using Buyer agreed parameters, based on criteria such as the Buyer’s payment scheduling) as the date for settlement of the relevant approved amount; for the avoidance of doubt if the relevant date identified is not a Business Day, then it shall be deemed to have been identified as the next following Business Day.
- “Service Provider Reduction” means, for each Approved Invoice paid prior to the Invoice Settlement Date confirmed by the Buyer, the difference between the rate displayed by the Service Provider on the platform and the Early Payment Rate
- “SOFR Screen Rate” means the Term SOFR (secured overnight financing rate) reference rate published by CME Group Benchmark Administration Limited for a period equal in length to the Term, provided that: (a) if no reference rate corresponds to the Term, the Bank may determine the rate by reference to any published reference rates at its discretion, and (b) if CME Group Benchmark Administration Limited ceases to publish such reference rate, the Bank may specify another source which publishes the Term SOFR reference rate.
- “Term” means the number of days from the date of any early payment by the Bank to you to the Invoice Settlement Date (inclusive) communicated by the Buyer.
- “TARGET2” means Trans-European Automated Real-time Gross Settlement Express Transfer payment system which utilizes a single share platform and which was launched on 19 November 2007 and any replacement system.
- “US Banking Day” means a day other than (a) a Saturday or Sunday on which commercial banks are open for business in the State of New York and (b) a day on which the Securities Industry and Financial Markets Association (or any successor organisation) recommends that the fixed income departments of its members be closed for the entire day for the purposes of trading in US Government securities.
- You acknowledge, agree, warrant and represent that:
- you are and will remain fully compliant with all laws and regulations applicable to you and no insolvency proceedings or process has been commenced by or against you;
- your involvement in the supply chain finance scheme with a Buyer has not violated and shall not violate any applicable anti-bribery and corruption laws and regulations including, but not limited to any relevant provision of any applicable anti-bribery and corruption laws and regulations in force in the jurisdiction where you and the Bank are domiciled and operate, and you have not engaged, and undertake that you shall not engage, in the following conduct: making of payments or transfers of value, offers, promises or giving of any financial or other advantage, or requests, agreements to receive or acceptances of, any financial or other advantage, either directly or indirectly, having the purpose, effect or acceptance of, or acquiescence in, public or commercial bribery or other unlawful or improper means of obtaining or retaining business, commercial advantage or the improper performance of any function or activity, and you shall procure the compliance with the above obligations from your own associated persons, agents or subcontractors as may be used for the fulfilment of your obligations herein;
- neither you nor any of your subsidiaries, directors, officers, employees, agents, or affiliates is an individual or entity (“Person”) that is, or is owned or controlled by Persons that are: (i) the subject of any sanctions issued, administered or enforced by the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the US Department of State, the United Nations Security Council, the European Union, Her Majesty’s Treasury or the Hong Kong Monetary Authority (collectively, “Sanctions”), or (ii) located, organised or resident in a country or territory that is, or whose government is, the subject of Sanctions;
- you will not, directly or indirectly, use any benefit derived from the SCF programme to support any activities or business of or with any Person, or in any country or territory, that is, or whose government is, the subject of Sanctions; or in any other manner that would result in a violation of Sanctions by any Person;
- you confirm compliance and will comply in all material respects with foreign and domestic laws and regulations relating to Sanctions, anti-money laundering, export controls and any required import or export licenses, pertaining to each jurisdiction in which you operate and to each Approved Invoice, and will promptly notify the Bank of any circumstance in connection with an Approved Invoice that may relate to money laundering, terrorist financing, bribery, corruption, tax evasion or Sanctions;
- the Bank shall be entitled to refuse, stop or cancel any early payment and/or take any action to protect the Bank’s interest in the event that any representation or warranty given by you is inaccurate or untrue;
- where you have confirmed an email address for receipt of encrypted emails from the Bank, the Bank may, at its discretion, send encrypted emails to you with such information or notices as the Bank deems necessary or appropriate(including but not limited to relevant payment information identifying Approved Invoices, approved amounts, date of payment and the correlating net amount paid (after fees and charges) and other notices envisaged in these Terms). Terms and conditions apply to the use of the Bank’s encrypted emails solution, Securemail, which you will need to agree separately in order to receive the emails. The Bank shall not be liable to you (or any third party, including the Buyer) in any circumstance for any error or omission in any email it issues to you;
- in the event that any payment made by the Bank is subject to any tax (including without limitation any value added, sales, withholding or other tax), levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) imposed by any government or other taxing authority) due or imposed in any jurisdiction, you shall be responsible for your liability for such tax and promptly pay, account for and do all actions as required under the applicable laws and regulations. The Bank shall not be liable in relation to, nor responsible for, any claim made by you relating to your liability for such tax in any circumstances;
- you agree that the Bank may make any deduction on account of tax the Bank is required to make by any local or foreign tax or regulatory authority from or in respect of any payment made to you, or to another person at your request or instruction, in connection herewith and the Bank may pay the amount deducted to the relevant tax or regulatory authority;
- no claim shall be made by you or any of your officers, directors, employees, agents, representatives or advisers against any member of the HSBC Group or any of their officers, directors, employees, agents, representatives or advisers for any special, indirect, punitive or consequential damages in respect of or arising from breach of contract or any other theory of liability relating to or connected herewith; all such claims are waived and released;
- no third party holds or will hold an interest (including, but without limitation, any ownership or security interest) in your invoices submitted to the Buyer or the debt represented thereby;
- all payments made by the Bank shall be made based on the information provided to the Bank by the Buyer and the Bank shall be under no obligation to check the account details provided to it by the Buyer. To the extent that any issue arises related to the amount paid, set‑off, counterclaim, credit notes, deduction or withholding, it will be a matter for you and the Buyer to determine;
- the Buyer intends to permit the Service Provider to make a reduction as a fee in respect of use of its platform in respect of each early paid Approved Invoice, each such reduction a Service Provider Reduction, and the Service Provider Reduction will be deducted from the relevant approved amounts before any early payment is made to you by the Bank. In this regard, you confirm to the Bank that:
- you have acknowledged and agreed to the Service Provider Reduction and that, when making any early payment to you, the Bank is authorised to take into account the Service Provider Reduction to the Service Provider which will be paid subsequently by the Bank to the Service Provider;
- neither the Buyer or the Service Provider has exerted improper pressure or used improper means to require or influence you to agree to receiving any early payments from the Bank or to agree to these Terms or the Service Provider Reduction and/or any other deductions applicable; and
- you are aware and acknowledge that no service is provided by the Bank (whether directly or indirectly) to you in respect of the deduction of the Service Provider Reduction (for the account of the Service Provider) to be borne by you;
- unless expressly provided to the contrary in these Terms, a person who is not party to these Terms has no right under the Contracts (Rights of Third Parties) Ordinance (Cap.623) to enforce or to enjoy the benefit of these Terms; you and the Bank may agree to change any Term without the consent of any person who is not party to it;
- you acknowledge and specifically consent to the Bank (i) engaging with the Service Provider to collect, exchange, process, transfer or disclose data (including personal data) and to share, store or transmit information (including personal data) for the purposes of exercising its rights and/or obligations under the Terms, and (iii) disclosing information (including personal data) to the Service Provider where necessary or desirable to give effect to the Terms;
- you acknowledge that the Bank may, as necessary or appropriate to facilitate use of the Service Provider’s platform by you and persons authorised by you, transfer and disclose relevant information (including personal data) globally, to the Service Provider and any member of the HSBC Group, and such recipient may also collect, process, transfer and disclose such information for the same purpose;
- you shall ensure that every person or entity in respect of which personal data is provided by you (or by anyone else on your behalf), or will be from time to time provided by you, to the Bank, the Service Provider or to another member of the HSBC Group has been notified of and agreed to the collection, processing, disclosure and transfer of their information (including to or from the Service Provider) before their information is provided. You shall at the same time advise them that they have rights of access to, and correction of, their personal data;
- you acknowledge and agree that, as regards processing of personal data, the Bank acts as controller in respect of such processing, and it is not intended that the Bank shall act as a processor in respect of any personal data;
- you acknowledge that the Service Provider is independent from the Bank and nothing in these Terms shall constitute a partnership, joint venture or other form of association between the Service Provider and the Bank; and the Bank assumes no liability or responsibility whatsoever relating to the Service Provider’s services including, without limitation, in relation to (i) any unavailability of the Service Provider’s services for any reason, (ii) your use of the Service Provider’s services, and (iii) any delay, malfunction or data error relating to the Service Provider’s services;
- you agree that you will notify the bank immediately if the accuracy of any of your representations or warranties in these Terms changes such that your representations or warranties become untrue.
- The following disclosure provisions survive termination and are binding for 3 years after a valid termination:
- you permit the Bank to pass on information it receives in connection herewith: (a) to the Bank's actual or proposed successors and assigns; (b) to any company in the HSBC Group; (c) to the Bank's professional advisers; (d) to any rating agency or actual or proposed insurer or other provider of credit protection to the Bank; (e) to any person with whom the Bank has or may enter into sub-participation arrangements and/or other risk mitigation in respect of any risks or rewards under Approved Invoices; (f) to any person whom the Bank may reasonably consider necessary to obtain receipt of payment of any Approved Invoices; (g) as required by law or to any court or regulatory, supervisory or governmental authority; or (h) to a federal reserve or central bank, provided that, in the case of a disclosure under (a), (b), (c), (d), (e) or (f) above, the party to whom disclosure is to be made is bound to keep that information confidential and use it only for the purpose for which it is disclosed;
- you undertake to provide the Bank on request with any information or documentary evidence about your tax status or the identity or tax status of any of your ultimate or any intermediate owners that the Bank considers (acting reasonably) is needed to comply (or demonstrate compliance or avoid non-compliance) with any HSBC Group member's obligations to any local or foreign tax or regulatory authority (the "Tax Information");
- you authorise (and undertake on request to obtain the written authority or consent of any of your ultimate or any intermediate owners for) any member of the HSBC Group to disclose your or your ultimate or any intermediate owners' Tax Information (as applicable), information about these Terms and any Approved Invoices involving you and the link between these Terms and Approved Invoices and you or your ultimate or any intermediate owner(s) to any local or foreign tax or regulatory authority; and
- nothing in these Terms obliges the Bank to act or refrain from acting in any way that might cause breach of any legal or regulatory requirement, contractual obligation or Bank policy or harm the Bank's or the HSBC Group's reputation.
- These Terms are governed by the laws of Hong Kong. You and the Bank each irrevocably submit to the non-exclusive jurisdiction of the courts of Hong Kong in respect of any proceedings which may be initiated in connection with these Terms.
- In agreeing to these Terms, you confirm that:
- you have read or viewed and understood any relevant fact sheet, video or other materials provided to you as part of the onboarding process whether delivered directly to you by the Bank or delivered to you via the Service Provider;
- you have agreed to any relevant terms and conditions issued to you by the Service Provider;
- all relevant information as provided to the Service Provider by the Buyer is accurate or you have notified any relevant changes to the Service Provider for approval by the Buyer;
- you have read and understood the relevant deductions that will be made in respect of Approved Invoices prior to payment to you;
- the person agreeing to these Terms has the necessary authority and capacity to confirm acceptance of the Terms on your behalf;
- you have taken all necessary steps to authorise the agreement to and performance of the Terms;
- the agreement to the Terms and the granting of such authorisations as may be necessary are in accordance with the applicable constitutional documents of your organization; and
- you acknowledge and accept that none of SCF or any related communication or action: (a) is undertaken as, or in connection with a service provided by HSBC Group to you, save for services negotiated separately with HSBC Group and/or for another purpose (if applicable); and/or (b) should be taken to mean that you are a “customer” of HSBC Group or to be taken to mean that you are entering into a business relationship with HSBC Group, or that HSBC Group is carrying out a transaction for you or on your behalf. All activities undertaken by the Bank (including liaison with the Buyer and communication sent by or received from the Bank whether through the Service Provider or otherwise) arise out of SCF provided by the Bank to the Buyer and the Bank is, at all times, acting as the Buyer’s agent and/or service provider.
- In choosing to accept the Terms of this document electronically and selecting the “I accept” or “I agree” option:
- you consent to use of electronic communications, to receiving notices and communications electronically and to utilising electronic signatures in lieu of using paper documents; the electronic signature service is accessible via a relevant link on the Service Provider’s platform;
- you acknowledge that (i) you are not required to receive notices and disclosures or sign documents electronically and may request to receive paper copies and withdraw your consent (given at (a) above) for any future receipt or signing at any time, by notifying the Bank; (ii) you may download certain documents, including these accepted Terms, and print them (viewing and printing will require that you have compatible software); (iii) if you require paper copies, you may request the same be provided by the Bank (and the Bank will confirm any fees associated to providing paper copies);
- you agree that (i) the individuals accessing the Service Provider’s platform and subsequently accessing and accepting these Terms (via the relevant link on that platform or otherwise) are authorised to execute, for and on your behalf, all agreements that are being furnished to you electronically via the Service Provider or a link available on the Service Provider’s platform; (ii) any such agreement executed in this fashion shall be binding and considered, in connection with any transaction, to be “in writing”, to have been “signed” and to constitute an “original” when printed from electronic files or records established and maintained in the normal course of business; (iii) you will not contest the validity or enforceability of any such agreement under the provisions of any applicable law relating to whether certain agreements are to be in writing, must be physically signed or whether the relevant individual(s) are authorised to execute any such agreement; and (iv) you will not contest the admissibility of records executed or created through the Service Provider’s platform or a link available on the Service Provider’s platform on the basis that the records executed or created were not created or maintained in documentary form; and
- the Bank shall be entitled to rely on and assume that your accepting this document electronically is a valid, effective and enforceable execution of the document and/or, to the extent permitted by law and necessary to do so, may treat purported execution by this method as a deemed acceptance of the content by you.
Interest Rate Disclosure
The following is provided for general information only and you should conduct your own independent research and analysis regarding the risks involved in conjunction with your legal, tax and/or accountancy advisors. The statements below are not exhaustive. Whilst HSBC receives updates from regulators as to their expectations, there are events relevant to benchmark rates which are not yet known. Accordingly, HSBC cannot give any statement about the likelihood of any specific outcome or its potential impact on any transaction, nor is HSBC providing any advice or recommendation.
What is LIBOR? The London Interbank Offered Rate (“LIBOR”) is an interest rate benchmark often used, directly or indirectly, to determine the interest payable under banking products including to calculate relevant early payment charges. In addition to LIBOR, calculation methodologies of some other benchmarks may be linked to LIBOR and these benchmarks may be directly or indirectly impacted as a consequence of LIBOR transition.
What’s changing? LIBOR is subject to national and international regulatory guidance and reform. Examples of recent regulatory and industry led guidance and proposals include:
- On 5 March 2021, the Financial Conduct Authority (FCA), the UK regulator of LIBOR , announced that all LIBOR settings for all currencies will either cease or no longer be representative immediately after (i) 31 December 2021, for GBP, Euro, Swiss Franc and Japanese Yen LIBOR settings in all tenors, and US Dollar LIBOR 1-week and 2-month settings; and (ii) 30 June 2023, for US Dollar Overnight, 1-month, 3-month, 6-month and 12-month settings.
- On 29th September 2021 the FCA published notices confirming its decision to compel the continued publication of 1, 3 and 6 month GBP and JPY LIBOR settings after the end of 2021, using a 'synthetic' methodology. These rates will be available for use from January 2022 in some legacy facilities but not new facilities.
- The FCA also indicated it will consider the case for continued publication after 30th June 2023 of USD 1, 3 and 6 month settings taking into account the views and evidence from US authorities and other stakeholders.
- In accordance with UK regulators requirements at the end of March 2021 we have ceased all new issuance of GBP LIBOR referencing facilities that expire after the end of 2021.
- US regulators have informed banks to stop entering into new USD LIBOR facilities as soon as practicable and in any event by no later than 31st December 2021.
- For EURIBOR, unlike LIBOR, there is currently no regulatory guidance that the rate will cease to be published. The underlying calculation methodology of EURIBOR has been reformed to ensure it is benchmark regulation compliant. Any demise of EURIBOR would follow an industry consultation process with appropriate implementation timelines. Fallback provisions may be included to address what happens should EURIBOR become temporarily or permanently unavailable in the future.
- In March 2021 Ippan Shadin Hojin JPA TIBOR Administration (JBATA) confirmed its intention to retain JPY LIBOR and discontinue Euroyen TIBOR at the end of December 2024. JBATA further announced that they will continue to consider fallbacks for TIBOR. If relevant, your terms may require amendment to reflect any recommended fallback provisions.
- Financial regulatory authorities are encouraging the use of “Risk Free Rates” or “Near Risk-Free Rates” (RFRs) which have been developed as alternative interest rate benchmarks. RFRs are typically backward looking overnight rates based on actual transactions and reflect the average of the interest rates that certain financial institutions pay to borrow overnight on an unsecured basis from wholesale market participants (for unsecured RFRs, such as SONIA) or the average rate paid on secured overnight repurchase or “repo” transactions (for secured RFRs, such as SOFR). RFRs do not include or imply any credit or term premium of the type seen in LIBOR or EURIBOR; however, RFRs are not truly free of risk; RFR’s can rise or fall as a result of changing economic conditions and central bank policy decisions.
Why are we sending this to you? As you are in receipt of terms from us that use LIBOR and/or that use an RFR to calculate early payment charges, you should be aware of the potential impact of these changes. You may use this information alongside the other information published by regulators to assist you and your advisers in deciding whether a different payment solution is more appropriate.
What are the key differences? The RFR interest rate benchmarks for GBP and US dollars are SONIA and SOFR respectively. For JPY, EUR and CHF the RFR interest rate benchmarks are TONA, ESTR and SARON. These RFRs are overnight rates based on actual historic transactions. They are published at the end of the overnight borrowing period. LIBOR is a ‘term rate’ which means it is published for different periods of time (e.g. 3 or 6 months) and is a ‘forward looking’ rate which means it is published at the beginning of the borrowing period and remains the same for that period. It is important to note:
- the manner of adoption, calculation and application of RFRs for early payment charges may differ compared with the application, calculation and adoption of RFRs in other products, such as the bond and derivatives markets;
- for some settings and currencies, LIBOR may continue to be published on a synthetic and non-representative basis;
- the adoption, calculation and application of a RFR could result in differences to the economics over the duration of the early payment and mean that amounts payable are lower or higher than using a LIBOR or other interest rate benchmark; you should ensure you speak to your advisers to understand the consequences of this;
- using a RFR where interest is calculated using one calculation methodology (e.g. RFR compounded in arrears), could mean that amounts payable are lower or higher than using an alternative interest rate benchmark or a RFR calculated using a different methodology (e.g. forward looking term RFR);
- you may find that different currencies will use different interest rate benchmarks for calculating interest and the methodologies and conventions for each will differ e.g. a facility with EUR and GBP may utilise EURIBOR for EUR and a RFR for GBP; you should consider the impact this may have on you from an operational perspective;
- you may find that different products will use different methodologies and conventions for calculating interest e.g. a loan facility may use a compounding in arrears methodology whilst a trade facility may use a forward looking term or a simple overnight rate; you should consider the operational impacts this may have on you;
- RFR interest rate calculation conventions will likely require your internal treasury, accounting and payment systems to be enhanced in order for you to manage the servicing of these products in an accurate, efficient and timely manner;
- future changes to market practice or conventions relating to the use of RFRs could potentially be adverse to your interests, require you to make changes to the documentation you have executed with us or to other administrative and operational changes you have already made; these further changes could result in you incurring additional costs;
Forward looking Term RFRs
- Forward-looking SONIA term rates are being published by a number of providers. These may be calculated by a provider using a different methodology to other providers and may result in differences in the rates published by the providers. Following regulatory guidance SONIA term rates, are only likely to be suitable for use in trade finance facilities and a limited range of loan facilities;
- Forward-looking SOFR term rates are being published by The CME Group Benchmark Administration Ltd. These do not have the same regulatory limits on use cases that Term SONIA has and are supported for use across a broad range of lending and trade products;
- Term RFRs are typically based on derivatives (typically Swaps or Futures) on overnight RFRs and therefore include future rate expectations but not interbank credit risk. The quality and stability of a term RFR is a function of derivative market liquidity and therefore these rates are different to the RFRs themselves and pose additional risks in their use, representativeness and potentially their availability;
- If these derivative markets on which term RFRs are typically based are not consistently as large as overnight wholesale lending markets, those term RFR rates cannot be as robust as overnight RFRs;
- Term RFRs might be affected by a spike in derivative prices on the particular day the rate is taken with this rate being fixed and used to calculate interest for each day in the interest period. When using overnight RFRs on the other hand, daily rates are typically averaged over the number of calendar days in the interest period meaning any one-day spike in rates would have a significantly smaller impact on interest calculated.
- Forward-looking term RFRs may not be available in every currency, particularly those where there is no active and liquid derivatives market e.g. CHF SARON.
On 29th September 2021 the FCA confirmed that to avoid disruption to legacy facilities that reference 1, 3 and 6 month GBP and JPY LIBOR settings, it will require the LIBOR benchmark administrator to publish these settings under a ‘synthetic’ methodology, based on RFRs, for the duration of 2022. These 6 LIBOR settings will be available only for use in some legacy facilities from January 2022, and are not for use in new business. In September 2021 the FCA launched a consultation on which legacy contracts can use these synthetic rates.
The FCA has confirmed that the methodology for calculating these ‘synthetic ‘rates will be: (a) ICE Term SONIA provided by ICE Benchmark Administration for GBP and the Tokyo Term Risk Free Rate (TORF) provided by QUICK Benchmarks Inc., adjusted to be on a 360 day count basis, for JPY) plus (b) the respective ISDA fixed spread adjustment (that is published for the purpose of ISDA’s IBOR Fallbacks for the 6 LIBOR settings)
These 6 LIBOR settings will become permanently unrepresentative of their underlying markets from 1st January 2022.
The application of ‘synthetic ‘LIBOR’ to a loan and/or trade facility could mean that amounts currently being paid under that facility change. These could be higher or lower than currently.
Notwithstanding the above, the regulatory expectation is that users of LIBOR should continue to focus on active transition rather than relying on synthetic LIBOR. Given this and the temporary nature of ‘synthetic’ LIBOR it is important that you address transition and the timing of this in the context of the options available to you.
What’s the impact for you? It is possible that use of a RFR may result in changes to the early payment amounts payable. Those amounts might be lower or higher than would have been payable if LIBOR had applied. Where an RFR is used, fallback provisions will be included to address unavailability of an RFR as an interest rate benchmark. The fallback provision may vary by jurisdiction and may result in changes to the early payment amounts, which may be higher or lower than would have been payable under the RFR.
If you are using a derivative product to hedge your early payments or for other purposes, the fallback interest rates that may apply may no longer match and could result in your position ceasing to be hedged appropriately by that product. Furthermore, in the event of a restructuring or termination of any associated hedging product(s) you have with HSBC or another hedging provider, a payment may be due from you to HSBC or that hedging provider. Such payment may be significant.
Where can I find further information? We are unable to provide specific advice or recommendations on this issue. We strongly recommend you seek guidance from your usual professional advisors if you have any questions. Further information is available at: www.business.hsbc.com/ibor.