Featured Product

    BoE Publishes Key Elements of Climate Biennial Exploratory Scenario

    June 08, 2021

    BoE published the Climate Biennial Exploratory Scenario (CBES) to explore the financial risks posed by climate change for the largest UK banks and insurers. The 2021 Scenario will examine resilience of the financial system in UK to the physical and transition risks associated with different climate pathways. BoE expects to publish the CBES results in May 2022. BoE also published key elements of the 2021 Biennial Exploratory Scenario, along with the guidance for participants of the 2021 Biennial Exploratory Scenario.

    This is the first time BoE is testing both banks and insurers to allow capture interactions between them and understand the risks presented by climate change across the financial system. The CBES is an exploratory exercise and will not be used to set capital requirements. Instead, participants’ submissions may inform the Financial Policy Committee’s future approach to system-wide policy issues and PRA's future supervisory approach. The key features of the CBES are:

    • Three scenarios of early, late, and no action built on a subset of NGFS scenarios. These are applied over a span of thirty years, reflecting the longer-term nature of climate-related risks.
    • Sizing the risks participants face based on their current (fixed) balance sheets. For banks, the exercise will focus on their credit books while, for insurers, the exercise will assess risks to both their assets and liabilities.
    • Qualitative questionnaire. This will capture participants’ own views on their risks, their approach to climate risk management, and their potential management actions
    • Detailed counterparty-level analysis for the largest counterparties. CBES asks firms to use novel modelling approaches to conduct a detailed, bottom-up analysis of their largest counterparties. For the remainder of counterparties, firms are expected to differentiate exposures by geography and sector.

    The objectives of the exercise are to size the financial exposures of individual firms and the financial system to their end-2020 balance sheets. This will shine a light on risks that are currently opaque. The exercise aims to understand business model challenges and likely responses to these risks. This will highlight where action may be needed and any implications for the provision of financial services. Moreover, the exercise aims to improve firms’ risk management and prompt a strategic view; this includes building capability, both among participants and within BoE. The exercise will also encourage participants to engage their largest counterparties to understand their vulnerability to climate change.

    The guidance for participants of the 2021 Biennial Exploratory Scenario accompanies the final data templates and the final qualitative questionnaire. In April 2021, BoE had published an early version of this guidance document to support participants by improving their readiness for the exercise. The purpose of this document is to help participants understand the data requirements, including any changes to requirements, compared to those published in April. Relative to the April publication, this document includes additional sections with more detail on the approach to analysis participants should adopt for different asset types, explicitly linking that approach to scenario narratives and published variable paths. 


    Related Links

    Keywords: Europe, UK, Banking, Insurance, CBES, ESG, Stress Testing, Reporting, Climate Change Risk, Data Templates, BoE

    Featured Experts
    Related Articles

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News

    ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations

    The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.

    November 02, 2022 WebPage Regulatory News

    ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector

    Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)

    October 31, 2022 WebPage Regulatory News

    EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation

    The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)

    October 26, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8582