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Financial Services Law Insights and Observations


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  • FSOC releases fact sheet on climate-related progress

    Federal Issues

    On July 28, the Financial Stability Oversight Council (FSOC) released a Fact Sheet detailing the progress made to-date by the FSOC’s members in implementing the climate-related financial risk report’s recommendations. As previously covered by InfoBytes, in October 2021 the FSOC released a report, Report on Climate Related Financial Risk, identifying climate change as an emerging threat to financial stability and issued over 30 related recommendations to financial regulators. According to the Fact Sheet, the FSOC has made substantial progress since the October 2021 report by: (i) enhancing public climate-related disclosure; (ii) assessing and mitigating climate-related risks that could threaten U.S. financial stability; (iii) building capacity and expanding efforts to address climate-related financial risks; and (iv) filling climate-related data and methodological gaps.

    Federal Issues Department of Treasury Climate-Related Financial Risks FSB

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  • FSB highlights crypto threats to global financial system

    Federal Issues

    On July 11, the Financial Stability Board (FSB) outlined challenges and vulnerabilities facing the global financial system in a letter sent to G20 finance ministers and central bank governors. While recognizing that markets have seemingly coped with “evolving economic conditions and high volatility in an orderly manner” and that so far “[n]o major financial institution has shown signs of distress,” the FSB cautioned that vigilance is necessary, as unexpected economic deteriorations may test financial resilience. Among other topics, the FSB discussed targeted approaches for phasing out of Covid-19 measures to mitigate the adverse effects of high debt, and stressed that “[e]xit strategies need to reflect specific domestic economic conditions and avoid excessive financial market reactions, which may limit the scope to engineer a fully synchronized exit across jurisdictions.” Crypto-assets also create vulnerabilities, the FSB added, pointing to a recent FSB communication that clarified that stablecoins and other crypto-assets “do not operate in a regulation-free space” and warned crypto-asset providers that they may not operate in any jurisdiction without meeting applicable regulatory, supervisory, and oversight requirements. The FSB will take enforcement action against members that fail to comply with existing legal obligations, it said, adding that it is currently working to ensure that crypto-assets are subject to regulation and supervision through coordinated regulatory initiatives. Additionally, the FSB noted it is closely collaborating with standard-setting bodies, including the Financial Action Task Force, to regulate and supervise stablecoins and other crypto-assets and understand the implications of decentralized finance on financial stability. Consultative reports discussing recommendations for global regulatory and supervisory approaches to stablecoins and other crypto-assets will be submitted in October to the G20 finance ministers and central bank governors.

    Federal Issues FSB Digital Assets Covid-19 FATF Of Interest to Non-US Persons

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  • FSB releases report on climate-related financial risks

    Federal Issues

    On July 14, the Financial Stability Board (FSB) released its 2022 Progress Report on the FSB’s work to implement a roadmap for addressing climate-related financial risks. As previously covered by InfoBytes, in July 2021 the FSB released the Roadmap, which focused on four interrelated areas: (i) public corporate disclosures to be used as the basis for pricing and managing climate-related financial risks (by companies internally and market participants); (ii) consistent metrics and disclosure data that can “provide the raw material for the diagnosis of climate-related vulnerabilities”; (iii) a systematic assessment of climate-related financial vulnerabilities; and (iv) the establishment of regulatory and supervisory practices and tools to allow authorities to effectively identify such climate-related financial risks. The recently released report noted “encouraging progress” toward establishing global baseline climate reporting standards, with the newly established International Sustainability Standards Board issuing exposure drafts addressing climate and general sustainability-related disclosure statements. The FSB also noted its commitment to improving the availability and cross-border comparability of climate-related data. Additionally, the report found that using climate scenario analysis to monitor climate-related vulnerabilities “can help the monitoring of financial risks to appropriately account for the longer time horizons that climate-related risks may involve.” As to regulatory and supervisory practices and tools, the FSB noted that “[f]inancial authorities should continue to embed the supervision of climate-related risks into overall supervisory frameworks, including the further development of the use of climate scenario analysis and stress testing exercises.” The FSB acknowledged that “the understanding of the financial risks arising from climate change and the policy approaches needed to address them remains at an early stage,” and that “there continues to be a need for strong international coordination of actions in the coming year (and beyond) because of the importance of this issue for the global financial system.”

    Federal Issues FSB Climate-Related Financial Risks

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  • FSB releases statement on crypto-asset activities

    Federal Issues

    On July 11, the Financial Stability Board (FSB) released a statement regarding international regulation and supervision of crypto-asset activities following the “recent turmoil in crypto-asset markets.” The FSB called for “an effective regulatory framework” to “ensure that crypto-asset activities posing risks similar to traditional financial activities are subject to the same regulatory outcomes, while taking account of novel features of crypto-assets and harnessing potential benefits of the technology behind them.” The statement also called for, among other things: (i) crypto-assets and markets to be subjected to effective regulation and oversight relative to their domestic and international risks; (ii) cryptocurrency service providers to ensure compliance with existing legal obligations in the jurisdictions where they operate; and (iii) stablecoins to be subject to “robust” regulations and supervision if they are to be adopted as a widely used means of payment or play an important role in the financial system. The FSB noted the “ongoing work of the FSB and the international standard-setting bodies to address the potential financial stability risks posed by crypto-assets,” and highlighted that member authorities will implement applicable international standards into national regulatory and supervisory frameworks “to the extent not already reflected and will adopt guidance, recommendations and best practices of international standard-setting bodies.”

    Federal Issues Digital Assets FSB Cryptocurrency Supervision

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  • Financial Stability Board informs G20 of 2022 priorities

    Federal Issues

    On February 14, the Financial Stability Board (FSB) sent a letter to the G20 finance ministers and central bank governors outlining several priorities for 2022 and setting the groundwork for promoting global financial resilience during the upcoming year. The FSB stated that the “transition path to a post-pandemic economy remains highly uncertain,” and warned that Covid-19 continues to weigh on the global economy with “[n]ew waves of infections … contribut[ing] to an uneven recovery across regions, higher inflation, and record-high debt levels globally.” The FSB also observed that, while banks and financial market infrastructures were able to absorb the macroeconomic shock of the pandemic, the nonbank financial intermediation sector (NBFI), which currently represents nearly half of global financial assets, experienced acute stress and needs to be strengthened. A resilient NBFI sector would reduce the need for extraordinary central bank intervention, the FSB stated. The FSB’s plans include prioritizing its work in this space in coordination with other standard-setting bodies to address any shortcomings and develop a systemic approach to the NBFI sector. Another priority is addressing potential financial stability risks associated with rapidly developing crypto-assets and digital innovation. The FSB observed that “[c]rypto-asset markets are fast-evolving and could reach a point where they represent a threat to global financial stability due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system.” Financial risks resulting from climate change are another critical area of concern for the FSB. The FSB’s work this year will include ensuring these risks are properly reflected in all financial decisions related to disclosures, data, vulnerabilities analysis, and regulatory and supervisory approaches.

    Federal Issues FSB Of Interest to Non-US Persons G20 Covid-19 Climate-Related Financial Risks Fintech Nonbank

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  • FSB reports on nonbank resilience efforts

    Federal Issues

    On November 1, the Financial Stability Board (FSB) released a report providing an update on its efforts to enhance the resilience of nonbank financial intermediation. According to FSB’s report, Enhancing the Resilience of Non-Bank Financial Intermediation, the non-bank financial intermediation (NBFI) sector has become more diverse and grown significantly to nearly half of global financial assets, compared to 42 percent in 2008. The report, among other things, provided an overview of the NBFI ecosystem and a framework for analyzing the availability of liquidity and the effective intermediation under stressed market conditions. The report noted that FSB’s “main focus of work to date” is intended “to assess and address vulnerabilities in specific areas that may have contributed to the build-up of liquidity imbalances and their amplification,” which includes, among other things: (i) enhancing money market fund resilience through policy work; (ii) assessing liquidity risk and its management in open-ended funds; (iii) examining the structure and drivers of liquidity during stress in government and corporate bond markets; (iv) examining “the frameworks and dynamics of margin calls in centrally cleared and non-centrally cleared derivatives and securities markets, and the liquidity management preparedness of market participants to meet margin calls”; and (v) assessing the fragilities in USD cross-border funding and their vulnerabilities in emerging market economies interactions. Based on these findings, the report noted that FSB’s future work will pursue a systemic approach to NBFI, which involves expanding the understanding of systemic risks in NBFI and ensuring that the current policy toolkit is adequate and effective from a system-wide perspective.

    Federal Issues FSB Nonbank Banking

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  • FSB addresses climate-related financial risks

    Federal Issues

    On July 7, the Financial Stability Board (FSB) released several reports addressing climate-related financial risks. The FSB Roadmap for Addressing Climate-Related Financial Risks noted that a growing number of international initiatives are underway that address financial risks resulting from climate change. “Effective risk management at the level of individual companies and financial market participants is a precondition for a resilient financial system,” the report stated, adding that the “interconnections between climate-related financial risks faced by different participants in the financial system reinforce the case for coordinated action.” Among other things, the FSB set out a roadmap that focuses on four interrelated areas: (i) firm-level disclosures that should be used as the basis for pricing and managing climate-related financial risks at the level of individual entities and market participants; (ii) consistent metrics and disclosure data that can “provide the raw material for the diagnosis of climate-related vulnerabilities”; (iii) an analysis of vulnerabilities to provide the groundwork for designing and applying regulatory and supervisory framework and tools; and (iv) the establishment of regulatory and supervisory practices and tools to allow authorities to effectively identify climate-related risks to financial stability. FSB also released the Report on Promoting Climate-Related Disclosures, following a survey of members which explored national and regional current or planned climate-related disclosures. FSB presented several high-level recommendations, including, among other things, that financial authorities use a framework based on recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD) across both non-financial corporates and financial institutions to propose a more consistent global approach. FSB issued another report entitled, The Availability of Data with Which to Monitor and Assess Climate-Related Risks to Financial Stability, that suggested various priorities to address climate-related data gaps “to improve the monitoring and assessment of climate-related risks to financial stability.”

    Additionally, Federal Reserve Board Vice Chair for Supervision, Randal K. Quarles, spoke before the Venice International Conference on Climate Change on July 11, in which he discussed the work of the TCFD and stressed the importance of improving data quality and addressing data gaps, as well as ultimately establishing "a basis of comprehensive, consistent, and comparable data for global monitoring and assessing climate-related financial risks."

    Federal Issues Financial Stability Board Climate-Related Financial Risks Disclosures Risk Management FSB Federal Reserve Bank Regulatory

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  • FSB Releases Status Report Addressing Decline in Correspondence Banking

    Consumer Finance

    On December 19, the Financial Stability Board (FSB) announced the release of a progress report and 2017 workplan to assess and address the decline in correspondent banking. According to the FSB, a decline in the number of correspondent banking relationships is a source of concern for the international financial system because, among other reasons, “it may affect the ability to send and receive international payments, or drive some payment flows underground.” The FSB’s report discusses the FSB’s November 2015 four-point action plan to “assess and address” this concern and highlights actions taken by the FSB over the last five months, including:

    • FSB efforts to collect both bank-level and aggregate country-level data on the number of correspondent banking relationships and aggregated transaction amounts by country and currency for approximately 300 banks in some 50 jurisdictions in order to understand in more detail the scale of withdrawal from correspondent banking, its causes and effects.
    • The Financial Action Task Force (FATF’s) publication of guidance on correspondent banking, which clarifies that the FATF Recommendations do not require financial institutions to conduct customer due diligence on the customers of their respondent bank clients.
    • The Basel Committee on Banking Supervision’s (BCBS’s) publication of a revised version of its guidance on correspondent banking.
    • The hosting of a roundtable discussion amongst the FSB, International Monetary Fund, the World Bank, and officials from central banks, private banks and finance ministries around the world to discuss steps that need to be taken to address this issue.

    The report also includes a discussion of deliverables for 2017, along with general time estimates as to when it expects to complete various tasks. Among other things, the FSB expects to publish the findings from its survey on correspondent banking in April of 2017, the BCBS expects to publish its revised guidance on correspondent banking in June, and FATF expects to release best practices on private sector information sharing and finalize its work on customer due diligence and financial inclusion in July.

    Banking Miscellany Correspondent Banking FSB FAFT BCBS

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