NYDFS: Regulated financial institutions must manage climate change-related financial risks

State Issues NYDFS State Regulators Climate-Related Financial Risks

On October 29, NYDFS issued a letter encouraging state-regulated financial institutions to “prudently manage” climate change-related financial risks. The letter was sent to “all New York-regulated banking organizations, branches and agencies of foreign banking organizations, mortgage bankers and servicers, and limited purpose trust companies (regulated organizations), as well as New York-regulated non-depositories (other than New York regulated mortgage bankers, mortgage servicers, and limited purpose trust companies), including New York regulated money transmitters, licensed lenders, sales finance companies, premium finance agencies, and virtual currency companies (regulated non-depositories).” The letter outlines NYDFS’s expectations for regulated organizations, beginning with changing their governance frameworks, risk management processes, and business strategies to reflect the increasing financial risks of climate change. Regulated non-depositories are expected to conduct risk assessments that consider the “disruptive consequences of climate change” on their customers and in the communities they serve, and should start developing strategic plans to mitigate risk.

NYDFS encourages institutions to take a “proportionate approach” that reflects the complexity of their business and exposure to financial risks. In addition, when developing their approach to climate-related financial risk disclosures, regulated organizations are also encouraged to consider engaging with the Task Force for Climate-related Financial Disclosures framework and other established initiatives. NYDFS’ press release further notes that it “is developing a strategy for integrating climate-related risks into its supervisory mandate and will engage with regulated organizations and regulated non-depositories, as well as work and coordinate with the Department’s U.S. and international counterparts, to develop effective supervisory practices, as well as guidance and best practices to mitigate the financial risks from climate change within the financial services industry.”