JFSA Summarizes Stress Testing Exercise, Responds to IFRS Consultation
JFSA published a paper that discusses the supervisory simultaneous stress testing exercise based on common scenarios, which BOJ and JFSA first conducted in 2020. The paper discusses differences from the institutional arrangements in Europe and the United States, describes the characteristics of the simultaneous stress testing conducted by BOJ and JFSA, and presents timeline and conclusions of the work conducted. In a separate statement, JFSA published the response of the IFRS Council of Japan to the IFRS consultation on sustainability reporting; the Council welcomes and supports the proposal to establish a new standard-setting board for sustainability reporting.
In response to the consultation on sustainability reporting, the IFRS Council of Japan notes that it supports the establishment of a new standard-setting board for sustainability reporting, under the presumption that the IFRS Foundation will maintain its role and responsibility of improving capital market transparency and efficiency through high-quality standard-setting. The Council also suggested improvements to certain proposals. The Council believes that the primary audience for sustainability reporting should be capital market participants (with investors at the center) and other users of financial information. The Council noted that it is important for the Sustainability Standards Board (SSB) members to have diverse backgrounds, including the regions they come from and the industries to which they belong. Furthermore, , other ESG factors, especially S (Social) and G (Governance), should also be addressed in parallel to climate change, suggested the Council. Believing that Japan is the largest contributor in the world, the Council pointed out that 320 companies and institutions from Japan support the Task force on Climate-related Financial Disclosures (TCFD) as of November 16, 2020. .
The paper on stress testing exercise highlights that the simultaneous stress testing exercise commenced in 2019. The common scenarios were formulated in October 2019 and these scenarios were presented to five major banks in early December 2019; these banks are Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Mizuho Financial Group, Sumitomo Mitsui Trust Holdings, and Norinchukin Bank. These participating banks submitted the stress test results by the end of March 2020. Concurrently, BOJ and JFSA also conducted stress tests of each of these participating banks using the same scenarios. From April 2020, BOJ and JFSA jointly compared and examined the submitted stress test results while closely communicating with the participating banks. Subsequently, feedback was provided to the participating banks through mid-July 2020. BOJ and JFSA have already started working on preparations for the next round of simultaneous stress testing, such as the design of the common scenarios. In entering the process for the next round, BOJ and JFSA expect participating banks to report on how their management perceives the issues presented in the feedback and what actions they plan to take. Going forward, BOJ and JFSA will continue to closely work together and further improve the effectiveness of simultaneous stress testing.
Keywords: Asia Pacific, Japan, Banking, Insurance, Securities, Stress Testing, Climate Change Risk, ESG, Reporting, Responses to Consultation, BOJ, JFSA
Featured Experts
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
Previous Article
APRA Grants License to Intesa while Xinja Bank Gives Up Its LicenseNext Article
EBA Explains Methodology for Assessing AML/CFT RisksRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.