In the run up to COP26, the United Nations Climate Change Conference, the UK is extending its global leadership on green finance by requiring the principal financial regulators to consider climate change in their policy and rule-making activities. Building on the existing body of climate change work, the FCA, the Financial Policy Committee (FPC), the Prudential Regulation Committee (PRC), and the Monetary Policy Committee (MPC) should now consider the government’s legally binding commitment to transition to a net zero economy by 2050, as part of the recommendations in the letters from the Chancellor that update the agencies' respective remits. The letter to FPC notes the intention to issue sovereign green bonds, mandate climate risk disclosures, implement green taxonomy, and prevent financial stability risks.
In the letter to FPC, the Chancellor welcomed the continued commitment of FPC to the implementation of robust prudential standards in the UK. As the world recovers from the pandemic, it also faces a tipping point for the climate. The shift to a world with net zero economy will mean systemic changes across all parts of the economy. This includes delivering a financial system that supports and enables the transition to an environmentally sustainable net zero economy by expanding the supply of green finance and that is resilient to the physical and transition risks that climate change presents. Thus, subject to market conditions, the UK will issue its first ever Sovereign Green Bond this year, helping to fund projects to tackle climate change and finance the much-needed infrastructure investment. Finance will also be a key focus of COP26, which will be hosted by the UK in Glasgow in November 2021. Consistent with its objectives, FPC should continue to act with a view to building the resilience of the UK financial system to the risks from climate change and support the government’s ambition of a greener industry, using innovation and finance to protect the environment and tackle climate change.
The Annex to the letter to FPC further details the remit and recommendations for the Committee. The letter notes that the government aims to align private-sector financial flows with environmentally sustainable and resilient growth and to strengthen the competitiveness of the UK financial sector by ensuring it can capture the opportunities arising from the greening of finance and to help foster the transition to net zero. To meet these aims, the government intends to introduce mandatory climate-related financial disclosure requirements and implement a "green taxonomy," robustly classifying what we mean by "green" to help firms and investors better understand the impact of their investments on the environment. In line with the Committee’s responsibility to monitor systemic risks—and to act to reduce those risks with a view to protecting and enhancing the resilience of the UK financial system—the Committee should continue to regard risks from climate change as relevant to its primary objective. Climate change poses risks to the stability of the UK financial system, including physical risks (which arise from the increased frequency and severity of climate and weather-related events) and transition risks (resulting from a sudden or disorderly transition toward a net zero economy). In addition, the Committee should consider the potential relevance of other environmental risks to its primary objective.
Keywords: Europe, UK, Banking, Securities, Insurance, Climate Change Risk, ESG, Net Zero Economy, COP26, Sustainable Finance, UN Climate Change Conference, Disclosures, Taxonomy, Financial Stability, Green Bonds, PRA
EC published the Implementing Regulation 2021/763 that lays down implementing technical standards for supervisory reporting and public disclosure of the minimum requirement for own funds and eligible liabilities (MREL).
EBA published a report that examines the convergence of prudential supervisory practices in 2020 and offers conclusions of the EBA college monitoring activity.
APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.
The private sector working group of ECB on euro risk-free rates published the recommendations to address events that would trigger fallbacks in the Euro Interbank Offered Rate (EURIBOR)-related contracts, along with the €STR-based EURIBOR fallback rates (rates that could be used if a fallback is triggered).
Bundesbank published a list of "EntryPoints" that are accepted in its reporting system; the list provides taxonomy version and name of the module against each EntryPoint.
EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).
The Sustainable Finance Taskforce of IOSCO held two roundtables, with global stakeholders, on the IOSCO priorities to enhance the reliability, comparability, and consistency of sustainability-related disclosures and to collect views on the practical implementation of a global system architecture for these disclosures.
Asia Pacific Australia Banking APS 111 Capital Adequacy Regulatory Capital Basel RBNZ APRA
ESMA published the final guidelines on outsourcing to cloud service providers.
EBA published annual data for two key concepts and indicators in the Deposit Guarantee Schemes (DGS) Directive—available financial means and covered deposits.