Featured Product

    FSOC Report Issues Recommendations to Address Climate Risks

    October 21, 2021

    The Financial Stability Oversight Council (FSOC) released a report in response to the U.S. President's Executive Order on climate-related financial risk. The report identifies climate change as an increasing threat to financial stability and sets out 30 recommendations for financial regulators, covering the actions needed to identify and address climate risks and promote financial resilience. The report is accompanied by a factsheet and remarks from Janet L. Yellen, the Secretary of the U.S. Treasury. In a statement, the Federal Reserve Chair Jerome Powell welcomed the FSOC report and noted that FED is developing a program on scenario analysis to evaluate the potential economic and financial risks posed by different climate outcomes.

    The report reviews the work underway across FSOC members on climate risks and financial stability, highlights the data and methodological challenges associated with measurement of financial risks arising from climate change, and presents potential approaches for meeting these challenges. The report discusses the critical role of consistent, comparable, and decision-useful climate-related disclosures for investors, financial institutions, regulators, and the public in the measurement of climate-related financial risks. It outlines key issues for assessment of the effect of climate risks on financial markets and institutions, emphasizing the need for measurement tools to assess such risks and the important role that scenario analysis can play in the development and deployment of these critical assessments. Finally, it presents a set of recommendations that begin to address the challenges and needs identified throughout the report. The following are some of the key recommendations that will serve as a coordinated FSOC agenda:

    • Addressing data gaps. Keeping in mind the existing gaps in available data, FSOC members have identified work on data and methodologies as a priority. FSOC recommends that is members should identify the data needed to evaluate the climate risk exposures of regulated entities and financial markets within the context of their mandates, perform an internal inventory of the relevance of existing data, and develop a plan for procuring necessary data through data collection, data sharing arrangements, and information purchased from data providers or other sources. FSOC recommends its members to develop consistent data standards, definitions, and relevant metrics to facilitate common definitions of climate-related data terms, sharing of data, and analysis and aggregation of data. 
    • Enhancing disclosures. FSOC recommends that its members, consistent with their mandates and authorities, consider enhancing public reporting requirements for climate risks in a manner that builds on the four core elements of the Task Force on Climate-related Financial Disclosures (TCFD), to the extent consistent with the U.S. regulatory framework and the needs of U.S. regulators and market participants. FSOC members issuing requirements for climate disclosures should consider whether such disclosures should include disclosure of greenhouse gas emissions to help determine exposure to material climate-related financial risks.
    • Utilizing scenario analysis. FSOC recommends that its members use scenario analysis, where appropriate, as a tool for assessing climate risks, taking into account their supervisory and regulatory mandates and the size, complexity, and activities of regulated entities. Members should consider using common scenarios that build on existing work, including scenarios developed by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) and work at the Financial Stability Board, as appropriate for the institutions and markets under consideration.
    • Reviewing need for additional prudential guidance. FSOC members, consistent with their mandate and authorities, should review existing regulations, guidance, and regulatory reporting relevant to climate risks, including credit risks, market risks, counterparty risks, and other financial and operational risks, to assess whether updates are necessary to appropriately address climate-related financial risks. Members should evaluate whether additional regulations or guidance specific to climate risks is necessary to clarify expectations for regulated or supervised institutions regarding management of climate risks, taking into account an institution’s size, complexity, risk profile, and existing enterprise risk management processes.

    The report also announces the establishment of two new climate committees: the Climate-related Financial Risk Committee (CFRC) and the Climate-related Financial Risk Advisory Committee (CFRAC). CFRC will be a staff-level committee to be formed 60 days after the Climate Report was released. The committee will identify priority areas for assessing and mitigating climate-related risks to the financial system and will serve as a coordinating body to facilitate communication across FSOC members and interested parties. CFRAC, however, will help FSOC gather information and conduct analysis of climate-related financial risks from a broad array of stakeholders.

     

    Related Links

    Keywords: Americas, US, Banking, Insurance, Securities, Climate Change Risk, ESG, Disclosures, Scenario Analysis, Reporting, Stress Testing, Sustainable Finance, TCFD Recommendations, FED, FSOC

    Featured Experts
    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    News

    BCBS Issues Climate Risk Principles while HKMA Expresses Its Support

    The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.

    June 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8280