PRA is seeking views (CP23/18) on a draft supervisory statement on banks’ and insurers’ approaches to managing the financial risks from climate change. CP23/18 is relevant to all UK firms within the scope of Solvency II and non-Solvency II firms (collectively referred to as insurers), banks, building societies, and PRA-designated investment firms. The comment period for CP23/18 ends on January 15, 2019.
The draft supervisory statement expands on the general approach of PRA as set out in its insurance and banking approach documents and draws on previous work from BoE and PRA on the financial risks from climate change. The purpose of these proposals is to set out how effective governance, risk management, scenario analysis, and disclosures may be applied by firms to address the financial risks from climate change. The desired outcome of PRA is that firms take a strategic approach to managing the financial risks from climate change, taking into account current risks and those that can plausibly arise in the future, and identifying the actions required today to mitigate current and future financial risks. The draft supervisory statement sets out the proposed expectations of PRA about how firms:
- Embed the consideration of the financial risks from climate change in their governance arrangements
- Incorporate the financial risks from climate change into existing risk management practice
- Use (long-term) scenario analysis to inform strategy setting and risk assessment and identification
- Develop an approach to disclosure on the financial risks from climate change
PRA considers that setting out its proposed expectations about how firms address the financial risks from climate change will enable firms to interpret its rules and facilitate the intended outcomes.
Comment Due Date: January 15, 2019
Keywords: Europe, UK, Banking, Insurance, Climate Change Risks, CP23/18, Governance, Disclosures, PRA
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