FINMA Issues Guide on Climate Risk Disclosures, Identifies Key Risks
The Swiss Financial Market Supervisory Authority (FINMA) published guidance on climate risk disclosures and published its 2022 Risk Monitor, which identifies key risks faced by supervised institutions in Switzerland and describes the resulting focus of its supervisory activity. Additionally, the Swiss Federal Council proposed mandatory reporting of cyberattacks for the operators of critical infrastructures.
The Guidance on Climate Risk Disclosures sets out the key findings from the first disclosures on climate-related financial risks by large banks and insurance companies, in accordance with disclosure Circulars 2016/1 “Disclosure—banks” and 2016/2 “Disclosure—insurers”, issued in 2021. FINMA analyzed these disclosures on climate-related financial risks that were included in the annual reporting on the financial year 2021. The FINMA disclosure circulars states that the largest banks and insurance companies (institutions in supervisory categories 1 and 2) must describe their significant climate-related financial risks, their impact on the business and risk strategy, and effects on existing risk categories. In addition, institutions must disclose the risk management structures and processes for identifying, measuring, and addressing these risks as well as relevant quantitative data, including a description of the methodology used. Institutions must also explain the governance structure in relation to climate-related financial risks and disclose the criteria and methods used to evaluate the materiality of risks. FINMA findings indicate that the said institutions have largely met their disclosure obligations and transparency has improved; however, the disclosures present a mixed picture with regard to scope, degree of detail, and relevance of the information. FINMA has discussed the institution-specific results in its supervisory dialog with the concerned institutions and communicated the improvements expected for the next climate risk-related disclosures. FINMA plans to conduct an ex-post evaluation after evaluating the second disclosures in 2023 to identify whether and to what extent future adjustments to disclosure practice are appropriate. FINMA will take into account various national and international developments in the area of climate risk reporting.
In its 2022 Risk Monitor, FINMA has identified seven key risks that are significant for the financial sector. These risks are interest rate risks, credit risks with mortgages, credit risks with other loans, risks from cyber attacks, risks in the area of combating money laundering and risks due to more difficult cross-border market access. FINMA identified increase in risk premiums (credit spreads) as one of the key risks that has been listed for the first time in the risk monitor. FINMA also examined decentralized finance applications on open-access blockchain infrastructures and its associated risks such as loss of assets due to significant market fluctuations, input errors, bugs in the applications, hacking or fraud as well as operational, legal, and reputational risks in case of institutional investors. In addition, the risk of money laundering is high due to the anonymity of decentralized financial applications. With the risk monitor, FINMA intends to ensure that the financial institutions under supervision remain stable in the future with regard to possible risks.
The Swiss Federal Council has amended the Information Security Act and submitted a proposal that intends to create a legal basis for the reporting obligation for the operators of critical infrastructures and defines the tasks of the National Cybersecurity Center (NCSC), which is intended to be the central reporting office for cyberattacks. Mandatory reporting will provide the NCSC with a clearer picture of the cyberattacks that have occurred in Switzerland and the modus operandi of the attackers. This will allow the threat situation to be assessed more accurately, and the operators of critical infrastructures can be warned at an early stage. Moreover, the proposal not only obliges companies to help protect against cyberattacks, it also requires the NCSC to offer subsidiary support in dealing with cyberattacks. The proposal sets out the NCSC's functions as a contact point for questions on cyberthreats and a reporting office for vulnerabilities. The NCSC will provide an electronic reporting form to make reporting as simple as possible.
- Press Release on Climate Risk Disclosures
- Guidance on Climate Risk Disclosures (PDF)
- Press Release on Risk Monitor
- Risk Monitor 2022 (PDF)
- Proposal on Reporting of Cyberattacks
Keywords: Europe, Switzerland, Banking, Climate Change Risk, ESG, Disclosures, Risk Monitor, Credit Risk, Cyber Risk, Interest Rate Risk, ML TF Risk, Operational Risk, Reputational Risk, Reporting, Cybersecurity, NCSC, Regtech, FINMA, Swiss Federal Council
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous ArticleCSSF Issues Updates Related to Crowdfunding Services and SFDR
Next ArticleMNB Determines O-SII Capital Buffers for 2023
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023