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  • U.S.-EU release statement on Joint Financial Regulatory Forum

    Financial Crimes

    On March 24 and 25, EU and U.S. participants, including officials from the Treasury Department, Federal Reserve Board, CFTC, FDIC, SEC, and OCC, participated in the U.S.-EU Joint Financial Regulatory Forum to discuss topics of mutual interest, including those related to (i) “next steps” for Covid-19 recovery and for mitigating financial stability risks; (ii) “sustainable finance”; (iii) banking and insurance multilateral and bilateral engagement; (iv) capital market regulatory and supervisory cooperation; (v) regulatory and supervisory developments pertaining to financial innovation, including the importance of promoting ongoing “responsible innovation and international supervisory cooperation”; and (vi) anti-money laundering and countering the financing of terrorism (AML/CFT) issues, including “the potential for enhanced cooperation to combat money laundering and terrorist financing bilaterally and in the framework of [the Financial Action Task Force].” Participants also discussed possible responses to climate-related financial risks, as well as “the progress in their respective legislative and supervisory efforts to ensure a smooth transition away from LIBOR.”

    Financial Crimes Department of Treasury OFAC EU Of Interest to Non-US Persons Covid-19 Climate-Related Financial Risks Fintech Anti-Money Laundering Combating the Financing of Terrorism LIBOR

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  • Fed establishes Financial Stability Climate Committee

    Federal Issues

    On March 23, Federal Reserve Governor Lael Brainard spoke at the “Transform Tomorrow Today” Ceres 2021 Conference to discuss the challenges and risks climate change poses to financial institutions. To strengthen the Fed’s capacity to identify and assess these financial risks, Brainard announced the establishment of the Financial Stability Climate Committee, which will complement the work of the Fed’s Supervision Climate Committee, and is “charged with developing and implementing a program to assess and address climate-related risks to financial stability.” The new committee will coordinate with the Financial Stability Oversight Council and its member agencies, as well as with the Fed’s community development, payments, international coordination, and economic research and data areas, in order to develop a coordinated approach. Brainard emphasized that the Fed is committed to increasing its capacity “to understand and address the risks, complexities, and challenges related to climate change within the Federal Reserve's responsibilities,” and noted that “climate change can be seen as similar to other financial stability shocks emanating from outside the financial system, such as COVID-19, which are difficult to predict with precision.”

    Federal Issues Federal Reserve Climate-Related Financial Risks

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  • Brainard addresses financial institutions’ role in tackling climate change

    Federal Issues

    On February 18, Federal Reserve Governor Lael Brainard spoke before the 2021 Institute of International Finance U.S. Climate Finance Summit to discuss the role financial institutions play in addressing the challenges of climate change. Noting that both physical risks from climate shifts and transition risks resulting from a shift to a low-carbon economy “create both risks and opportunities for the financial sector,” Brainard stressed that “[f]inancial institutions that do not put in place frameworks to measure, monitor, and manage climate-related risks could face outsized losses on climate-sensitive assets caused by environmental shifts, by a disorderly transition to a low-carbon economy, or by a combination of both.” She emphasized that financial institutions should engage in robust risk management, scenario analyses, and forward planning to ensure they can withstand such climate-related risks and support the transition to a low-carbon economy.  

    Brainard also emphasized that given the uncertainty in estimating climate risks, a scenario analysis that takes into account climate-related physical and transition risks and their potential effects on individual firms and the financial system as a whole “may be a helpful tool to assess the microprudential and macroprudential implications of climate-related risks under a wide range of assumptions.” However, Brainard clarified that a scenario analysis is distinct from a regulatory stress test, adding that “[i]t will be important to. . .consider how stress testing and scenario analysis may complement one another.” While acknowledging that a highly prescriptive approach to model development and scenario analysis may not be the most effective way to ensure financial institutions are prepared for the possible impacts of climate change and that “leverag[ing] a range of complementary approaches being developed in both the private and the public sectors” may produce more robust outcomes, Brainard noted that “we should strive for an appropriate balance that allows for innovation and learning across the public and private sectors, iterating in the most effective way possible.”

    Federal Issues Federal Reserve Climate-Related Financial Risks

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

    State Issues

    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.” 

    State Issues NYDFS State Regulators Climate-Related Financial Risks

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