Financial Stability Board
Climate-related financial risks - FSB publishes roadmap - 7 July 2021
The Financial Stability Board (FSB) has published a roadmap for addressing climate-related financial risks. The roadmap outlines the work being undertaken - and that is still to be done - by standard-setting bodies and other international organisations over a multi-year period across four key areas: disclosure; data; vulnerabilities analysis; and regulatory and supervisory approaches.
The roadmap is accompanied by a report on the availability of data with which to monitor climate-related financial stability risks, identifying limitations and gaps in the availability of such data, and a report on promoting climate-related disclosures. It is also published alongside a letter from the Chair of the FSB, Randal K. Quarles, stressing the need for co-ordinated action to address the financial risks posed by climate change, and discussing the continued elevated risks to financial stability following the coronavirus pandemic. The FSB intends to publish an interim report on the overall lessons learnt from COVID-19 from a financial stability perspective on 13 July 2021.
Report: FSB Roadmap for Addressing Climate-Related Financial Risks
Press release: FSB Chair presents a comprehensive roadmap for addressing climate-related financial risks
Letter from FSB Chair, Randal Quarles to G20 Finance Ministers and Central Bank Governors
Letter Webpage
Report: The Availability of Data with which to Monitor and Assess Climate-Related Risks to Financial Stability
Report on Promoting Climate-Related Disclosures
Report webpage
European Commission
Taxonomy Regulation - European Commission adopts Delegated Regulation containing disclosure obligations - 6 July 2021
The European Commission has adopted a Delegated Regulation (C(2021) 4987) on the information to be disclosed by financial and non-financial companies about how sustainable their activities are, based on Article 8 of the Taxonomy Regulation ((EU) 2020/852).
Article 8(1) of the Taxonomy Regulation requires large corporates to include in their non-financial statements information on how and to what extent their activities are associated with environmentally sustainable economic activities. Under the Delegated Regulation - which specifies the content and presentation of information to be disclosed - non-financial companies will have to disclose the share of their turnover, capital and operational expenditure associated with environmentally sustainable economic activities. Financial institutions will have to disclose the share of the total assets they finance or invest in which are environmentally sustainable economic activities. The Delegated Regulation also sets out common rules relating to key performance indicators.
The Council of the EU and the European Parliament will now scrutinise the Delegated Regulation and it will enter into force 20 days after its publication in the Official Journal of the EU. It will apply from 1 January 2022.
Commission Delegated Regulation (EU) supplementing the Taxonomy Regulation ((EU) 2020/852) by specifying the content and presentation of information to be disclosed by undertakings subject to Article 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic activities, and specifying the methodology to comply with that disclosure obligation (C(2021) 4987 final)
Staff working document (SWD(2021) 183 final)
Staff working document webpage
Annexes 1 to 5
Annex 6
Annex 7
Annex 8
Annexes 9 to 11
FAQs
Webpage
Press release: Commission puts forward new strategy to make the EU’s financial system more sustainable and proposes new European Green Bond standard
Strategy for financing transition to sustainable economy - European Commission publishes communication - 6 July 2021
The European Commission has published a communication (COM(2021) 390) to the European Parliament, the Council of the European Union, the European Economic and Social Committee and the European Committee of Regions, on a strategy for financing the transition to a sustainable economy. This strategy proposes action in four areas – transition finance; inclusiveness; resilience and contribution of the financial system; and global ambition – and it includes six sets of actions:
- to extend the existing sustainable finance toolbox to facilitate access to transition finance;
- to improve the inclusiveness of small and medium-sized enterprises (SMEs) and consumers by giving them the right tools and incentives to access transition finance;
- to enhance the resilience of the economic and financial system to sustainability risks;
- to increase the contribution of the financial sector to sustainability;
- to ensure the integrity of the EU financial system and monitor its orderly transition to sustainability; and
- to develop international sustainable finance initiatives and standards, and support EU partner countries.
The Commission has also published a staff working document and a factsheet on the new EU sustainable finance strategy. It intends to report on the strategy’s implementation by the end of 2023.
Communication: Strategy for Financing the Transition to a Sustainable Economy (COM(2021) 390 final)
Annex
Staff working document (SWD(2021) 180 final)
Factsheet
Webpage
Press release
Treasury Committee
Regulating financial services - House of Commons Treasury Committee publishes report on future framework - 6 July 2021
The House of Commons Treasury Committee has published its Fifth Report of Session 2021-22 on the future framework for regulating financial services. In the report, the Committee considers the future of financial services following the Brexit transition period and examines how financial regulation should be set and scrutinised by Parliament.
The report sets outs a number of findings, including the following:
- Regulators’ rulebooks: the Committee agrees with HM Treasury that the body of EU financial services rules onshored during the process of leaving the EU should be moved into the regulators’ rulebooks;
- Ministerial powers: the Committee has not been provided with compelling evidence to justify changing the law to allow ministers the absolute right to see financial services regulators’ policy proposals before they are published for consultation. By doing so, the perception of regulatory independence from government could be damaged;
- Activity-specific regulation: the extent to which HM Treasury wishes to implement activity-specific regulation is unclear, but the government should be sparing in its approach. There may be a role for activity-based principles to allow the government to instruct the regulators, at a more micro-level, on how it wishes them to approach the regulation of specific business sectors;
- FOS: HM Treasury should consider how the decision-making process of the Financial Ombudsman Service (FOS) would interact with the future regulatory framework for the FCA; and
- Ex-ante scrutiny: while the Committee believes that a measure of ‘ex-ante’ scrutiny by Parliament is necessary, it does not see a clear need for the creation of a new committee or a new independent body (which would recreate the role of the European Parliament’s Economic and Monetary Affairs Committee) to carry out ex-ante or ex-post scrutiny.
Report: The Future Framework for Regulation of Financial Services (HC 147)
Conclusion
Summary
Press release
Bank of England, Prudential Regulation Authority and Financial Conduct Authority
Diversity and inclusion in the financial sector - Bank of England, PRA and FCA publish joint discussion paper - 7 July 2021
The Bank of England (BoE), PRA and FCA have published a joint discussion paper (DP21/2) setting out policy options to improve diversity and inclusion in financial services. The FCA has also published a paper providing a review of research literature that provides evidence of the impact of diversity and inclusion in the workplace.
The regulators note that the current regulatory landscape has been driven by sector-specific developments, resulting in fragmented requirements for different types of firms. In the final section of the paper, the regulators outline a number of different policy initiatives that they believe could effectively drive and support change. These generally build on existing requirements and the regulators’ wider policy and supervisory frameworks, and include:
- extending targets for representation at board level to a wider range of firms, and creating targets for under-representation in relation to characteristics other than gender;
- requiring firms to set targets for under-represented groups for entry into the wider senior management population, and for entry into customer-facing roles;
- making senior leaders directly accountable for diversity and inclusion in their firms;
- collecting diversity data about individuals as part of the information required for senior management function (SMF) applications. Where the regulators have concerns that a proposed appointment would worsen or not address risks arising from a lack of diversity and ‘groupthink’, this could provide grounds for withholding approval of an application;
- linking progress on diversity and inclusion to remuneration;
- imposing a requirement for firms publicly to disclose a selection of aggregated diversity data on the firm’s senior management population and the employee population as a whole, as well as their diversity and inclusion policies; and
- developing expectations on product governance that specifically take into account consumers’ protected characteristics, or other diversity characteristics.
The regulators note that some of their proposals are better suited to larger firms, and they are conscious of the need for proportionality.
Responses are requested by 30 September 2021. The feedback and data received will be used to develop detailed proposals, with a joint consultation planned for Q1 2022, followed by a policy statement in Q3 2022. The BoE intends to consider separately how to develop proposals to promote diversity and inclusion for financial market infrastructure firms. The FCA is also considering its approach to diversity in listed firms and will provide more detail in the coming months.
Discussion paper: Diversity and inclusion in the financial sector – working together to drive change (DP21/2)
Report: Review of research literature that provides evidence of the impact of diversity and inclusion in the workplace
Webpage
Bank of England press release
