BNM Proposes Guidance on Business Continuity and Climate Risk Aspects
The Bank Negara Malaysia (BNM) proposed revisions to the guidelines on business continuity management for financial institutions, with the feedback period ending on March 31, 2022. The proposals aim to facilitate the development and implementation of a robust business continuity management framework, policies, and processes that are integrated with the overall risk appetite and reinforce sound risk management practices. The aim is to preserve the continuity of critical business functions and essential services within a specified timeframe in the event of an operational disruption. BNM also issued a summary of discussions at meeting of the Joint Committee on Climate Change and published the proposed requirements and guidance on climate risk management and scenario analysis. The feedback period on the consultation ends on March 31, 2022 and the final policy document is expected to come into effect on June 01, 2022, with certain exceptions.
Recognizing the characteristics of climate risks, the consultation on climate risk management sets out the principles and requirements on the management of climate-related risks by financial institutions, As per the consultation, financial institutions shall, among others,
- Ensure that the board and senior management exercise effective oversight of climate-related risks to safeguard the financial institution’s resilience against the adverse impact of climate change.
- Embed climate-related risks into their internal control frameworks across the three lines of defense to ensure the robust management of material climate-related risks.
- Embed climate risks into the risk appetite framework, including the potential long-term impact of these risks as drivers of existing types of material risks, and reflect these material risks in the internal capital adequacy assessment process.
- Integrate material climate risk considerations into their existing enterprise-wide risk management framework and support a reliable approach to identifying, measuring, monitoring, and controlling material risks.
- Continuously develop data capabilities, tools, and methodologies to effectively aggregate and report material climate risks and actively monitor and escalate material and potential climate risks, supported by appropriate data, risk analysis, and clear reporting procedures.
- Understand the transmission and impact of climate risks on the other existing risk types and ensure that their risk management systems and processes account for material climate-related risks.
- Produce reliable, meaningful, and comparable climate-related disclosures, to support informed decisions by stakeholders and reinforce the effective management of material climate-related risks in the financial sector.
- Employ scenario analysis to determine the resilience of their business strategies to material climate risks and insights from the scenario analyses shall inform the risk profile, risk appetite, and risk management framework.
With respect to scenario analysis and stress testing, BNM will provide additional guidance to the financial institutions in a forthcoming discussion paper on climate change stress test, with this consultation set to be released in the first quarter of 2022. Additionally, a Task Force on Climate-Related Financial Disclosures (TCFD)-aligned application guide for disclosures on climate-related risks by financial institutions is expected to be issued for public consultation in January 2022, as mentioned in the statement summarizing discussions at the meeting of the Joint Committee on Climate Change. The BNM-regulated financial institutions are expected to work toward adopting the stretch recommendations that are fully aligned with TCFD disclosures, by the end 2024. As an extension of this work, disclosure guides for businesses will be developed in 2022. The Joint Committee also plans to publish a detailed report in 2022, based on its various engagements and surveys, to explore opportunities and challenges for the financial industry to meaningfully support the climate transition.
- Exposure Draft on Business Continuity Management (PDF)
- Statement on Meeting of Joint Committee on Climate Change
- Notification on Exposure Draft on Climate Risk Management
- Exposure Draft on Climate Risk Management (PDF)
Comment Due Date: March 31, 2022 (Both Proposals)
Effective Date: June 01, 2022 (Climate Risk Guidance)
Keywords: Asia Pacific, Malaysia, Banking, Climate Change Risk, ESG, Disclosures, Reporting, Stress Testing, Scenario Analysis, TCFD, Sustainable Finance, Business Continuity, Operational Risk, Operational Resilience, BNM
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Data scientist; SaaS product designer; credit portfolio analyst and product strategist; portfolio modeler; correlation researcher
Previous ArticleECB Recommends Changes to Proposed Rules on Artificial Intelligence
CFPB Finalizes Rule on Small Business Lending Data Collection
The Consumer Financial Protection Bureau (CFPB) published a final rule that sets out data collection requirements on small business lending, under section 1071 of the Dodd-Frank Act.
BCBS to Consult on Pillar 3 Climate Risk Disclosures by End of 2023
The Bank for International Settlements (BIS) published a summary of the recent Basel Committee (BCBS) meetings.
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
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.
US Congress Report Examines Data Privacy and Cybersecurity Regulations
The U.S. Congressional Research Service published a report on banking, data privacy, and cybersecurity regulation.
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.
EU to Conduct One-Off Scenario Analysis to Assess Transition Risk
The European authorities recently made multiple announcements that impact the banking sector.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
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.