Featured Product

    FCA and PRA Publish Reports on Climate Change Adaptation

    October 28, 2021

    The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) published reports that set out how climate change affects their respective responsibilities and the actions that are being taken in response to it. In its report, FCA set out the steps that have been taken in the industry to mitigate the risks climate change presents and identifies areas, such as retail investments and mortgages, where more needs to be done. The assessment comes within the context of the developing strategic approach to climate change issues.

    The FCA report outlines climate change and environmental, social, and governance (ESG) strategy and how it is evolving. It further outlines a timeline of major ESG publications of FCA between now and the Summer of 2022. This includes the publication of final rules on disclosures aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations for standard listed issuers, asset managers, life insurers, and FCA-regulated pension funds. It also includes work on the Sustainability Disclosure Requirements and product labeling. The report examines how the industry is making commitments to reach net-zero. FCA is also running a further Green Fintech Challenge, focused on new products and services to speed the transition to a net-zero economy. The report is focused on the climate-related risks that financial services firms are exposed to, including insurance underwriting risk, credit risk, financial market risk, and operational risk. The report also outlines the role of capital mobilization in financing both climate change adaptation and climate change mitigation 

    The PRA report sets out response to the risks posed by climate change to its operations and policy functions in two parts. Part A of the report examines the risks posed by climate change to PRA-regulated firms, the progress they have made in their management of these risks, what the PRA response to these risks has been, and the PRA supervisory strategy from 2022. In 2022, PRA will switch its supervisory approach on the climate-related supervisory expectations from one of assessing implementation to actively supervising against them. While challenges arising from issues such as data gaps persist, firms should use their judgment, expertise, and the tools available to them, to demonstrate understanding and management of the risks posed by climate change to their businesses. This approach will then need to evolve, as industry-wide understanding of climate-related financial risks, data, tools, and best practices continue to develop. As climate change becomes part of the core supervisory approach, firms should expect to demonstrate effective management of climate-related financial risks through regular supervisory engagements and reviews. Where progress is insufficient and assurance or remediation is needed, PRA will request clear plans and, where appropriate, consider exercise of its powers and use of its wider supervisory toolkit. 

    Part B of the PRA report examines the relationship between climate change and the banking and insurance regulatory capital regimes, whether there are gaps that should be addressed, and the PRA’s planned future work in this space. Capital is a key part of the supervisory and regulatory toolkit of PRA. While PRA observes that it is not the right tool to address the underlying causes of climate change (greenhouse gas emissions), it should help provide resilience against its consequences (financial risks). PRA already expects firms to hold capital against material climate-related financial risks, but in light of the report’s findings, PRA will be undertaking further work. This work will help determine whether changes to the design, use or calibration of the regulatory capital framework may also be needed to ensure resilience against these risks. PRA will provide an update on its approach in 2022 following a call for further research and a conference on climate change and capital requirements.

     

    Related Links

    Keywords: Europe, UK, Banking, Securities, Climate Change Risk, ESG, Climate Change Adaption, Regulatory Capital, PRA, FCA

    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

    BIS Bulletins Discuss DeFi Lending and Aspects of Crypto-Assets

    The Bank for International Settlements (BIS) published bulletins on lending in decentralized finance (DeFi) system, on blockchain scalability and fragmentation of crypto, and on extractable value and market manipulation in crypto and decentralized finance.

    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
    RESULTS 1 - 10 OF 8292