RBI asks banks to shift from scam-tainted LIBOR to other rate benchmarks, BFSI News, ET BFSI

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The Reserve Bank of India has asked banks and financial institutions to use any widely accepted alternative reference rate (AAR) instead of LIBOR (London Interbank Offered Rates) as the reference rate for entering into new financial contracts.

The Reserve Bank‘s directive follows a decision of the Financial Conduct Authority (FCA), UK which on March 5, 2021, had announced that all LIBOR settings would either cease to be provided by any administrator or would no longer be representative.

The UK directive to phase out LIBOR came after a rate fixing scandal involving major global banks.

The RBI directive

In order to deal with the emerging situation, the RBI has asked banks and financial institutions to “cease entering into new financial contracts that reference LIBOR as a benchmark and instead use any widely accepted alternative reference rate (ARR), as soon as practicable and in any case by December 31, 2021.” The financial institutions, it suggested, should incorporate robust fallback clauses in all financial contracts that reference LIBOR and the maturity of which is after the announced cessation date of the LIBOR settings.

The RBI has also advised the financial institutions to cease using the Mumbai Interbank Forward Outright Rate (MIFOR), a benchmark which references the LIBOR, latest by December 31, 2021.

Board approved plan

The Reserve Bank of India (RBI) had in August 2020 asked banks to frame a board approved plan, outlining an assessment of exposures linked to LIBOR and steps to be taken to address risks arising from the cessation of LIBOR, including preparation for the adoption of the ARR.

While certain US dollar LIBOR settings will continue to be published till June 30, 2023, the extension of the timeline for cessation is primarily aimed at ensuring roll-off of USD LIBOR-linked legacy contracts, and not to encourage continued reliance on LIBOR.

“It is, therefore, expected that contracts referencing LIBOR may generally be undertaken after December 31, 2021, only for the purpose of managing risks arising out of LIBOR contracts (e.g. hedging contracts, novation, market-making in support of client activity, etc.), contracted on or before December 31, 2021,” the RBI said.

It has also asked banks and financial institutions to incorporate robust fallback clauses, preferably well before the respective cessation dates, in all financial contracts that reference LIBOR and the maturity of which is after the announced cessation date of the respective LIBOR settings.

The central bank also said it will continue to monitor the evolving global and domestic situation with regard to the transition away from LIBOR and proactively take steps to mitigate associated risks in order to ensure a smooth transition.

LIBOR scandal

The LIBOR Scandal was a highly-publicised scheme in which bankers at several major financial institutions colluded with each other to manipulate the LIBOR. The scandal sowed distrust in the financial industry and led to a wave of fines, lawsuits, and regulatory actions. Although the scandal came to light in 2012, there is evidence suggesting that the collusion in question had been ongoing since as early as 2003.

Many leading financial institutions were implicated in the scandal, including Deutsche Bank (DB), Barclays (BCS), Citigroup (C), JPMorgan Chase (JPM), and the Royal Bank of Scotland (RBS). As a result of the rate fixing scandal, questions around LIBOR’s validity as a credible benchmark rate have arisen and it is now being phased out. According to the Federal Reserve and regulators in the U.K., LIBOR will be phased out by June 30, 2023, and will be replaced by the Secured Overnight Financing Rate (SOFR).



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What are biometric payments?, BFSI News, ET BFSI

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The most popular biometric payment form is fingerprint payment, which is based on finger scanning. The device commonly employs two-factor authentication, in which a finger scan replaces a card swipe, and the user enters a PIN (personal identification number). It works on Biometric authentication which is a security measure which uses biometric features of a user to verify the identity of a person trying to access an authorized device.

Types of Biometric authentication-
Fingerprint
Facial recognition
Voice identification
Eye scanners

How does a biometric payment card works:

The fingerprint is enrolled by the cardholder and safely stored on the card. During a transaction, he or she places his or her finger on the card’s sensor, which detects if the scanned print matches the print stored in the card. A successful or unsuccessful match is marked by a green or red light on the card. PIN code can be used as a fallback solution whenever the cardholder’s fingerprint cannot be used – like ATM cash withdrawals, for example.

How safe are the biometric payments:

Due to the uniqueness of individual’s biometric features, using biometric payment methods provides better safety and security to both consumers and banks. The card compares the user’s finger on the scanner to the reference data safely stored within the card, before authorizing a payment. If the card is lost or stolen, it cannot be used even for low value contactless payments. However, there are some concerns that the fingerprints could be made available to law and enforcement agencies or government agencies. There is a risk that customer privacy and confidential information can be compromised as it is easy to set a new password but impossible to give someone a new look. In response to this, Biometric payment service providers point out that they do not keep the customer’s actual fingerprint in their databases — they keep an encrypted number derived from the finger’s point-to-point measurements.

Benefits of Biometric Payment System:

Convenience
No PIN number require
No limit on contactless spend
More secure
Preferred by customers
Compatibility

Future of Payments

As we look into the future, biometric technology is improving and developing constantly in terms of speed and accuracy, authenticating using a biometric identifier is quicker and easier than entering a pin or password. This benefit both the consumer as well as businesses, with the path to conversion made much more straightforward by the adoption of biometric payment authentication.

Who are offering Biometric Payments

Banks like BNP Paribas, The Royal Bank of Scotland and NatWestare offering Biometric payments card to their users. Chase, Bank of America, Citi, and Wells Fargo have introduced various biometric ID options, including voice, fingerprint, eye, or facial recognition.

In India, it is currently used with AePS settlement systems only based on Aadhar identification.



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