In a letter to the G20 Leaders, ahead of the July 2022 meeting, the Financial Stability Board (FSB) Chair set out an overview of the key work done by FSB. Accompanying the letter is an interim report on the scarring and exit strategies related to pandemic. FSB also published a progress report on the roadmap for addressing climate risks. The Annex to the report on climate risk roadmap provides an update to the July 2021 detailed roadmap description of the planned actions and deliverables across the standard-setting bodies and relevant international organizations.
Among other issues, the letter from FSB Chair provides an update on the work on crypto-assets. The letter flags the recent communication of FSB on crypto-assets, which clarifies that stablecoins and other crypto-assets do not operate in a regulation-free space and that crypto-asset providers must not commence operations in any jurisdiction, unless they meet all applicable regulatory, supervisory, and oversight requirements. The letter highlights that FSB is working to ensure that crypto-assets are subject to robust regulation and supervision and will continue to coordinate regulatory initiatives in this area. In time for the G20 Finance Ministers and Central Bank Governors meeting in October 2022, FSB plans to submit a consultative report on its review of the FSB high-level recommendations for global stablecoins as well as a consultative report with recommendations on regulatory and supervisory approaches to other crypto-assets. Along with the letter, FSB published a report that discusses the exit strategies to support equitable recovery and address effects from the COVID-19 scarring in the financial sector. The report notes that preventing scarring effects to sustainable growth over the long term requires effective domestic policies, containing cross-border spillovers and addressing debt overhang issues. The report calls for the continuous assessment of impacts, interactions, and trade-offs of policies affecting the financial sector and for authorities to consider further whether, and how, support measures could be made more targeted. The final report is slated to be delivered to the G20 in November.
The report on climate risk roadmap outlines the progress made on addressing financial risks from climate change, with focus on the following four pillars of the roadmap for addressing climate-related financial risks:
- Firm-level disclosures. The International Sustainability Standards Board's (ISSB) work on the finalization of its standards, International Organization for Securities Commission's (IOSCO) work on endorsement, and jurisdictions’ work on implementation are important near-term priorities for disclosures. The Basel Committee on Banking Supervision (BCBS) also announced that, in parallel with the ISSB's work, it will explore using Pillar 3 of the Basel Framework to promote a common disclosure baseline for climate-related financial risks across internationally active banks. Furthermore, FSB plans to publish an overall progress report on climate disclosures in October 2022; the report will report in further detail on the progress made by the ISSB, individual jurisdictions, and firms in improving climate disclosures.
- Data. Work has continued on improving the availability and cross-border comparability of climate-related data more broadly. A priority is to further coordinate the establishment of common metrics for financial risks, including forward-looking metrics. Building on the NGFS data directory and other international efforts, FSB’s work has progressed on two fronts. First, identifying data sources and gaps based on regulatory and supervisory practices through its interim report on regulatory and supervisory approaches to climate-related risks. Second, FSB has worked toward taking practical steps to identifying specific climate-related vulnerabilities that warrant close monitoring and is identifying data sources that could be used for computing relevant metrics for its own internal vulnerabilities analysis. The future work of FSB would also focus on developing metrics for climate-related financial risks for monitoring climate vulnerabilities across borders and sectors and continuing to improve them through learning as the data landscape evolves.
- Vulnerability analysis. Work has continued to progress along three strands—ongoing monitoring using the currently available tools, development of conceptual frameworks, and further development of scenario analysis. FSB believes that work on climate scenarios will need to be coordinated with the development of forward-looking metrics and note the plans to publish its joint work with the Network for Greening the Financial System (NGFS) on climate scenarios in November 2022.
- Regulatory and supervisory practices and tools. In this area, a number of initiatives have been completed or are well underway across the standard-setting bodies and relevant international bodies, including supervisory risk management expectations and supervisory guidance covering the banking, insurance, and asset management sectors. From a cross-sectoral and cross jurisdictional perspective, FSB issued its consultative interim report in April 2022 (with a final report due in October 2022) that aims to assist supervisory and regulatory authorities in developing their approaches to monitor, manage, and mitigate risks arising from climate change and promote consistent approaches. FSB will consider, in 2024, whether to conduct a peer review of supervisory and regulatory practices against its recommendations across jurisdictions.
- Press Release on Letter to G20
- Letter from FSB Chair (PDF)
- Report on Exit Strategies (PDF)
- Press Release on Climate Risk Roadmap
- Report on Climate Risk Roadmap (PDF)
Keywords: International, Banking, Insurance, Securities, Covid-19, Credit Risk, Cross-Border Spillovers, Climate Change Risk, ESG, Disclosures, Progress Report, NGFS, Crypto-Assets, DGI 2, FSB
Hasan leads Moody’s Analytics ESG methodology development. He is expert on carbon transition, nature related risks and is a guest lecturer at ESSEC Business school on sustainable finance.
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.
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