BNM Increases Focus on Addressing Climate Risks in Financial Sector
BNM's Joint Committee on Climate Change, also known as JC3) met to discuss the progress in addressing climate change issues in the financial sector and to set priorities for the next twelve months. As part of the priorities, JC3 members committed to work toward wider adoption of the recommendations by the Task Force on Climate-related Financial Disclosures (TCFD) and to advance concrete actions to pave the way for adoption of disclosure standards by the industry in the immediate future. JC3 members also agreed to take up, as part of its future work plan, the development of measures to help bridge gaps in climate and environment risk-related information needed to support risk management and product solutioning by financial service providers.
The four JC3 sub-committees are focused on risk management, governance and disclosure, product and innovation, and engagement and capacity building. The COVID-19 pandemic has brought to the fore the need to build resilience against climate and environmental risk events. In the backdrop of such ongoing developments, the JC3 meeting discussed the completed deliverables of its sub-committees during the year, along with the following future initiatives:
- BNM expects to publish, post consultation, a revised document on climate change and principles-based taxonomy as well as an additional guidance for implementation in early 2021. In parallel, 12 financial institutions that are members of the JC3 will participate in a pilot implementation of the taxonomy, which is scheduled to commence this month.
- JC3 members provided input on the development of reference documents on climate risk management and scenario analysis, which will be undertaken over the coming months to further strengthen risk management practices in the financial sector.
- Members discussed the results of an assessment conducted on climate-related disclosure practices across a sample of financial institutions in Malaysia, based on the recommendations of TCFD. Insights from the assessment will inform planned work on developing an application guide on climate-related disclosures, which will commence shortly as part of initiatives to improve the quality of disclosures.
- Financial participants noted paucity and fragmentation of information, gaps in technology knowledge, coordination issues, and low visibility on national strategies as the key challenges in addressing climate change risks. Initial views were shared on measures to address these market gaps and these measures will be further developed by the Product and Innovation sub-committee.
- Members agreed to further engage with institutional investors to identify opportunities in the development of products and services to address climate change and discussed plans to develop a more structured technical capacity building program for financial industry participants.
Related Link: Press Release
Keywords: Asia Pacific, Malaysia, Banking, Climate Change Risk, Sustainable Finance, Disclosures, Taxonomy, Stress Testing, BNM
Featured Experts
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Amnon Levy
Financial researcher; authority in credit portfolio management and AI/ML, risk-based pricing, climate and credit, CECL/IFRS 9; credit and ALM
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Related Articles
EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
FSB Sets Out Work Priorities for 2021
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU Publishes Corrigendum to Revised Capital Requirements Regulation
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs Issue Statement on Application of Sustainability Disclosures Rule
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC Consults on Crisis Management and Deposit Insurance Frameworks
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA Proposes Standards for Supervisory Cooperation Under IFD
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE Addresses Banks in Scope of First Resolvability Assessment
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.
