The Office of the Comptroller of the Currency (OCC) is requesting feedback on the draft principles designed to support identification and management of climate-related financial risks at the OCC-regulated institutions with more than USD 100 billion in total consolidated assets. The principles are intended to support the bank efforts to focus on key aspects of climate-related financial risk management and provide a high-level framework for climate-related financial risk management consistent with the existing OCC rules and guidance. OCC will use this feedback to inform any future guidance with respect to the climate-related financial risks. Interested parties are requested to submit feedback on the draft principles and the included questions by February 14, 2022.
These draft principles provide a high-level framework for the safe and sound management of exposures to climate-related financial risks, consistent with the existing risk management framework described in existing OCC rules and guidance. The principles are intended to support efforts by banks to focus on key aspects of climate risk management. The principles will help bank management make progress toward answering key questions on exposures and incorporating climate-related financial risks into banks’ risk management frameworks. The general principles cover aspects such as governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement, and reporting; and scenario analysis. Among other facts, the proposed principles stipulate that climate-related scenario analyses should be subject to oversight, validation, and quality control standards that would be commensurate to their risk. Climate-related scenario analysis results should be clearly and regularly communicated to all relevant individuals within the bank, including an appropriate level of information necessary to effectively convey the assumptions, limitations, and uncertainty of results.
OCC also notes that boards and management should consider and incorporate climate-related financial risks when identifying and mitigating all types of risk. These risk assessment principles describe how climate-related financial risks can be addressed in various risk categories, including credit risk, liquidity risk, operational risk, legal/compliance risk, and other financial and non-financial risks. With respect to credit risk, OCC notes that the board and management should determine credit risk appetite and lending limits related to the climate-related risks. OCC plans to elaborate on these principles in a subsequent guidance that would distinguish roles and responsibilities of boards of directors and management, incorporate the feedback received on the principles, and consider lessons learned and best practices from the industry and other jurisdictions. In keeping with its risk-based approach to supervision, OCC intends to appropriately tailor any resulting supervisory expectations to reflect differences in banks’ circumstances such as complexity of operations and business models.
Keywords: Americas, US, Banking, Lending, Credit Risk, Climate Change Risk, ESG, Guidance, Scenario Analysis, Stress Testing, Proportionality, OCC
Previous ArticleFSB Reports on Trends and Risks in Non-Bank Intermediation
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.