The Bank Negara Malaysia (BNM) published a proposal on operational risk capital calculation requirements and set out two policy documents, with one setting out the final principles on climate risk and scenario analysis and the other addressing the regulatory requirements around securities borrowing and lending. The regulator also launched the Greening Value Chain (GVC) program and issued a statement summarizing updates at the 9th Joint Committee on Climate Change (JC3) meeting.
Below are the key highlights of these recent updates:
- The proposal on operational risk requirements addresses how a financial institution shall calculate its total operational risk-weighted assets (RWAs) referred to in paragraph 9.2(b) of the Capital Adequacy Framework (Capital Components) and the Capital Adequacy Framework for Islamic Banks (Capital Components). The consultation is open for feedback until March 31, 2022, with the final requirements expected to come into effect from January 01, 2025. The proposed requirements would be applicable to licensed banks, licensed investment banks, licensed Islamic banks, and financial holding companies. These requirements are broadly in line with the Basel III standards set by the Basel Committee on Banking Supervision (BCBS) and the capital standards issued by the Islamic Financial Services Board (IFSB)—and have been modified accordingly where applicable.
- The policy document on securities borrowing and lending of Real-Time Electronic Transfer of Funds and Securities System (RENTAS) securities provides regulatory requirements for market participants that enter into securities borrowing and lending transactions in respect of the RENTAS securities. The securities borrowing and lending is defined as the process that involves a loan of securities from one party to another for a limited period of time, in exchange for a lending fee and collateral. The policy document stipulates the terms and conditions, procedures, and practices to be observed by market participants in the securities borrowing and lending market. The policy document is applicable to licensed banks and investment banks, among other market participants, and will come in effect on December 02, 2022.
- The policy document on climate risk and scenario analysis sets out 14 principles that can be broadly categorized into the topics of governance, strategy, risk appetite, risk management, scenario analysis, and disclosure. BNM also published a supplemental guidance on this topic, along with its feedback statement on the responses received to the consultation on the proposed policy on climate risk and scenario analysis. The policy document is applicable to all financial institutions and comes in effect on November 30, 2022, with certain exceptions. Certain specifications with respect to governance, strategy, risk appetite, and risk management shall come into effect on December 31, 2023 while certain specifications with respect to scenario analysis, metrics and targets, and disclosure shall come into effect on December 31, 2024.
- BNM launched the Greening Value Chain (GVC) Program, in conjunction with the Finance Day at COP-27 and in collaboration with financial institutions and certain strategic partners. The GVC program aims to assist Malaysian small and medium enterprises (SMEs) in implementing impactful, long-term change to green their operations. This can be achieved by technical advice from participating organizations and transition financing from the Low Carbon Transition Facility.
The JC3 held its ninth meeting to move forward the climate risk agenda. At this meeting, JC3 members approved the publication of the Data Catalog and Accompanying Report, which focuses on data availability, gaps, and recommendations to bridge data gaps in the area of climate risk. In 2023, JC3 will focus efforts on working with relevant data providers to resolve data accessibility issues and improve the quality, comparability, and consistency of existing data sources. JC3 plans to develop and launch several pilot programs in 2023, just like the Greening Value Chain program mentioned above. JC3 is also supporting the Capital Markets Malaysia, an affiliate of the Securities Commission Malaysia, to develop an ESG Disclosure Guide tailored to SMEs in Malaysia.
- Proposed Operational Risk Rules
- Policy on Securities Borrowing and Lending (PDF)
- Policy on Climate Risk and Scenario Analysis (PDF)
- Supplemental Guidance on Climate Risk (PDF)
- Feedback on Climate Risk Consultation (PDF)
- Launch of Greening Value Chain Program
- Statement on Climate Change Committee Meeting
Keywords: Malaysia, Banking, Basel, Operational Risk, Climate Change Risk, ESG, Scenario Analysis, Lending, Securities Borrowing and Lending, Credit Risk, SMEs, BNM, Asia Pacific
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Previous ArticleAPRA Addresses Data Collection Roadmap and Recovery Planning
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.