The Swiss Financial Market Supervisory Authority (FINMA) published the 2021 Risk Monitor, which identifies key risks facing supervised institutions in Switzerland and describes the resulting focus of its supervisory activity. This version of Risk Monitor also discusses climate risks for the financial sector as a longer-term trend. Together with the supervised institutions, FINMA is working intensively to adequately capture the financial risks associated with climate change and to incorporate them into the institutions’ risk management systems. Emphasis will also be on analyzing the first climate risk disclosures based on the requirements specified in FINMA circulars.
FINMA is also working to address the risk of greenwashing in the distribution of financial products and services. To avoid and prevent deception in relation to sustainability claims, Swiss funds must ensure satisfactory transparency, among other things. Unchanged from the previous year, FINMA identified the six principal risks—persistent low interest rate environment, possible correction in the real estate and mortgage market, defaults or adjustments to corporate loans or bonds abroad, cyber risks, money laundering, and increased impediments to cross-border market access. FINMA considers five of these risks to be equally significant as in the previous year, with heightened risks in the real estate and mortgage market. On the basis of progress made by supervised entities, FINMA has downgraded last year’s principal risk of a disorderly abolition of LIBOR benchmark rates (no longer considered a principal risk).
Additionally, FINMA supported establishment of the International Sustainability Standards Board (ISSB) and announced its commitment to implement the recommendations of the Network for Greening the Financial System (NGFS) as part of the NGFS Glasgow Declaration. In addition to the NGFS declaration, FINMA noted its contributions to the implementation of the NGFS recommendations related to integration of climate risks into supervisory activities as well as disclosure of climate-related financial risks. FINMA is developing concepts for monitoring the climate risk management of banks and insurance companies. These concepts will be used gradually and proportionally from 2022. Based on its experience from supervision and its principle-based approach, FINMA will further elaborate on its expectations for the management of climate risks in supervised institutions, if necessary. FINMA is also concerned with the quantitative methods for measuring climate-related financial risks. FINMA and the Swiss National Bank are about to complete a pilot project aimed to identify and measure risk concentrations of systemically important Swiss banks in relation to sectors that are exposed to increased transition risks; this project includes both an exposure analysis and future-oriented climate scenario analyzes. FINMA also adjusted its disclosure rules on climate-related financial risks, based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The affected financial institutions must apply the rules from 2022.
- Press Release on Risk Monitor
- Risk Monitor (PDF)
- Press Release on Implementation of NGFS Recommendations
Keywords: Europe, Switzerland, Banking, Insurance, Risk Monitor, Climate Change Risk, ESG, COVID-19, Cyber Risk, Disclosures, TCFD, FINMA, Lending, Credit Risk, FINMA
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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