Legal & Regulatory News

FSB publishes report on supervisory and regulatory approaches to climate-related risks

On 13 October 2022, the Financial Stability Board (FSB) published their final report on 'Supervisory and Regulatory Approaches to Climate-related risks' (the Report). The Report aims to assist supervisory and regulatory authorities in developing their approaches to monitoring, managing and mitigating risks arising from climate change, as well as promoting consistent approaches across sectors and jurisdictions.

The Report takes into account feedback received during a consultation process in April 2022. As such, the Report provides a number recommendations on:

• firstly, the supervisory and regulatory reporting and collection of climate-relate-related data from financial institutions; and
• secondly, the system-wide perspective, and the extent to which supervisory and regulatory tools and policies address climate-related risks.

The FSB's recommendations to supervisory authorities in the Report include the following:

• accelerate the identification of their information needs for the purposes of addressing climate-related risks with a particular focus on identifying key metrics;
• consider the need for third-party verification to strengthen the reliability of climate-related data and provide oversight of financial institutions governance, processes and controls on the reliability of climate-related data;
• consider using common definitions for the physical, transition and liability risks associated with climate change;
• engage in global coordination towards common regulatory reporting frameworks as this could provide a catalyst in the identification of exposures and understanding of the impact of  climate-related risks; and
• when designing climate scenario analysis and stress tests, adopt features that can best inform a system-wide view across the financial system, including a top-down or hybrid approach.

The FSB, as part of their Roadmap for addressing Climate-related Financial Disclosures, will assess in 2024 whether or when to conduct a peer review of supervisory and regulatory practices against its recommendations across jurisdictions, and will re-consider the state of development of macroprudential tools.

Click here to view the Report.