TCFD report finds encouraging progress on climate-related financial disclosure, but also need for further progress to consider financial risks

5 June 2019

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Ref no: 21/2019

The Financial Stability Board (FSB) welcomed the publication today of the 2019 Status Report by the industry-led Task Force on Climate-related Financial Disclosures (TCFD). The Status Report provides an overview of the extent to which companies in their 2018 reports included information aligned with the core TCFD recommendations published in June 2017.

To better understand current climate-related financial disclosure practices and how they have evolved, the Task Force reviewed reports for over 1,100 companies from 142 countries in eight industries over a three-year period. In addition, the Task Force conducted a survey on companies’ efforts to implement the TCFD recommendations as well as users’ views on the usefulness of climate-related financial disclosures for decision-making. While the Task Force found some of the results of its disclosure review and survey encouraging, it has concerns that not enough companies are disclosing decision-useful climate-related financial information.

The Task Force reviewed financial filings, annual reports, integrated reports, and sustainability reports. It found that:

  • Disclosure of climate-related financial information has increased since 2016, but is still insufficient for investors.

  • More clarity is needed on the potential financial impact of climate-related issues on companies.

  • Of companies using scenarios, the majority do not disclose information on the resilience of their strategies.

  • Mainstreaming climate-related issues requires the involvement of multiple functions.

FSB Chair Randal K. Quarles said that: “The Task Force continues to provide a forum for market participants to develop and use a valuable private-sector solution to assess climate-related business risks. The increased participation levels confirm the value of these voluntary disclosures, allowing the public, markets, and investors to better monitor risks.”

Michael R. Bloomberg, Chair of the TCFD said: “We remain encouraged by the continued growth in the number of companies adhering to the guidelines of the TCFD – it means businesses are better informed about the risks they face, and investors are more capable of making sound decisions. However, we’re also clear-eyed about the serious threat that climate change poses. In order to keep people out of harm’s way, and build a more resilient global economy, we need more companies to follow their lead – and soon.”

A total of 785 organisations are now supporters of the TCFD, including the world’s largest banks, asset managers and pension funds, responsible for assets of $118 trillion.

The FSB has asked the TCFD to deliver another status report to the FSB in September 2020. The TCFD will undertake further work during the course of the next year to promote and monitor adoption of the TCFD recommendations. The Task Force is considering additional work to: (i) clarify elements of the TCFD’s supplemental guidance, (ii) develop process guidance around how to introduce and conduct climate-related scenario analysis, and (iii) identify business-relevant and accessible climate-related scenarios.

Notes to editors

The TCFD was established by the FSB in December 2015 to develop a set of voluntary, consistent disclosure recommendations for use by companies in providing information to investors, lenders and insurance underwriters about their climate-related financial risks. The members of the Task Force are drawn from a wide range of industries and countries across the globe.

The Task Force published its recommendations in June 2017 after extensive public engagement and consultation. The TCFD developed 11 recommendations on climate-related financial disclosures that are applicable to organisations across sectors and jurisdictions. The recommendations are structured around four thematic areas:

  • Governance: The organisation’s governance around climate-related risks and opportunities.

  • Strategy: The actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning.

  • Risk Management: The processes used by the organisation to identify, assess and manage climate-related risks.

  • Metrics and Targets: The metrics and targets used to assess and manage relevant climate-related risks and opportunities.

More information on the work of the Task Force, and companies’ statements of support, are available on the TCFD website.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

FSB Report on Market Fragmentation

4 June 2019 | PDF full text (791 KB)

This report, which was delivered to G20 Finance Ministers and Central Bank Governors ahead of their meetings in Fukuoka on 8-9 June, sets out the conclusions from the FSB’s work on market fragmentation and identifies several areas for further work to address it.

The report looks at some examples of financial activities where supervisory practices and regulatory policies may give rise to market fragmentation. It discusses potential trade-offs that authorities have considered between the benefits of increased cross-border activity and a need to tailor domestic regulatory frameworks to local conditions and mandates. The areas the report examines are the trading and clearing of over-the-counter (OTC) derivatives across borders; banks’ cross-border management of capital and liquidity; and the sharing of data and other information internationally.

The report lays out approaches and mechanisms that may enhance the effectiveness and efficiency of international cooperation, and help to mitigate any negative effects of market fragmentation on financial stability.

On this basis, the report identifies several areas for further work to address market fragmentation. These focus on facilitating further analysis and discussion of approaches and mechanisms for more efficient and effective cross-border cooperation amongst authorities. Such areas for further work include: exploring ways to, where justified, enhance the clarity of deference processes in derivatives markets; strengthening the understanding of approaches by supervisory and resolution authorities towards pre-positioning of capital and liquidity by international banks; considering ways to enhance supervisory communication and information sharing, including approaches and mechanisms to avoid future fragmentation; and considering whether there is evidence of market fragmentation with observed consequences for financial stability as part of the FSB’s ongoing evaluation of the effects of too-big-to-fail reforms.

FSB publishes report on market fragmentation

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Ref no: 20/2019

The Financial Stability Board (FSB) today published a report on market fragmentation and identified several areas for further work to address it. The report was delivered to G20 Finance Ministers and Central Bank Governors ahead of their meetings in Fukuoka on 8-9 June.

In response to a proposal by the Japanese G20 Presidency, the FSB explored issues around market fragmentation and considered tools to address them, where appropriate. The report focuses on instances where reducing market fragmentation might have a positive impact on financial stability, or improve market efficiency without any detrimental effect on financial stability.

The report looks at some examples of financial activities where supervisory practices and regulatory policies may give rise to market fragmentation. It discusses potential trade-offs that authorities have considered between the benefits of increased cross-border activity and a need to tailor domestic regulatory frameworks to local conditions and mandates. The areas the report examines are the trading and clearing of over-the-counter (OTC) derivatives across borders; banks’ cross-border management of capital and liquidity; and the sharing of data and other information internationally.

The report lays out approaches and mechanisms that may enhance the effectiveness and efficiency of international cooperation, and help to mitigate any negative effects of market fragmentation on financial stability.

On this basis, the report identifies several areas for further work to address market fragmentation. These focus on facilitating further analysis and discussion of approaches and mechanisms for more efficient and effective cross-border cooperation amongst authorities. Such areas for further work include: exploring ways to, where justified, enhance the clarity of deference processes in derivatives markets; strengthening the understanding of approaches by supervisory and resolution authorities towards pre-positioning of capital and liquidity by international banks; considering ways to enhance supervisory communication and information sharing, including approaches and mechanisms to avoid future fragmentation; and considering whether there is evidence of market fragmentation with observed consequences for financial stability as part of the FSB’s ongoing evaluation of the effects of too-big-to-fail reforms. Section 5 of the report describes this further work in more detail.

The FSB will review progress on this further work in November 2019.

Today the International Organization for Securities Commissions (IOSCO) published a follow-up report to work undertaken in 2015 by its Task Force on Cross-Border Regulation. The report, which complements the FSB’s work, considers where and why regulatory-driven market fragmentation in wholesale securities and derivatives markets is occurring, and what action(s), if any, IOSCO and its members could pursue to minimise its adverse effects.

Notes to editors

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Overnight Risk-Free Rates: A User’s Guide

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This user guide to overnight risk-free rates (RFRs) provides details on how RFRs are calculated to clarify how overnight RFRs can be used in cash products and to encourage adoption of these rates where they are appropriate.

Overnight RFRs are robust because they are anchored in active, liquid underlying markets. This contrasts with the scarcity of underlying transactions in the term interbank and wholesale unsecured funding markets from which some IBORs are constructed, a characteristic which could make them susceptible to manipulation. The FSB encourages the development and adoption of such overnight RFRs where appropriate, for example in business where term properties are not needed, or where exposure to bank credit risk is not necessary or desirable, in order to enhance financial stability.

FSB publishes user guide for overnight risk-free rates

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Ref no: 19/2019

The Financial Stability Board (FSB) has today published a user guide to overnight risk-free rates (RFRs). The guide provides an overview of RFRs, details of how they are calculated, and options on how overnight RFRs can be used in cash products. In doing so the FSB aims to encourage adoption of these rates where they are appropriate.

Interbank offered rates (IBORs), a type of interest rate benchmark, play a key role in global financial markets. The FSB started its work on reforms to IBORs in response both to cases of attempted manipulation and to the decline in liquidity in key interbank unsecured funding markets. In 2014, the FSB set out recommendations to reform major interest rate benchmarks, such as key IBORs, and has been monitoring progress on implementation since then.

As part of this work, the FSB published in July 2018 a statement on reforms to IBORs and the development of RFRs and term rates. That statement noted that, to ensure financial stability, benchmarks which are used extensively must be especially robust. Overnight RFRs have been identified in a number of currency areas because these rates are robust and are anchored in active, liquid underlying markets. This contrasts with the scarcity of underlying transactions in the term interbank and wholesale unsecured funding markets from which some IBORs are constructed, a characteristic which could make them susceptible to manipulation. The FSB continues to encourage the development and adoption of such overnight RFRs where appropriate, for example in business where term properties are not needed, or where exposure to bank credit risk is not necessary or desirable. This will enhance financial stability.

Notes to editors

In April 2019 the FSB Chair Randal K. Quarles hosted a meeting with industry participants on progress on the transition to RFRs.

In November 2018, the FSB published its most recent progress report on implementation of its recommendations to reform major interest rate benchmarks. The report sets out the progress made on the development of RFRs, and markets based on these rates, and on further reforms to IBORs.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Further information on reform of financial benchmarks is available on the FSB website.

Solvent Wind-down of Derivatives and Trading Portfolios: Discussion Paper for Public Consultation

3 June 2019 | PDF full text (320 KB)

This discussion paper sets out considerations related to the solvent wind-down of the derivative portfolio activities of a G-SIB that may be relevant for authorities and firms for both recovery and resolution planning.

Many G-SIBs have large derivative and trading portfolios, including in some cases with illiquid or exotic positions. A disorderly close-out of these portfolios can potentially propagate substantial risks to financial stability. Given the global presence of some G-SIBs and the cross-border nature of many of these portfolios (including the intra-group transactions arising from firms’ booking models), such financial stability risks could spread across borders.

This discussion paper considers the capabilities G-SIBs should be able to meet to support the preparation and execution of a solvent-wind down plan, the evaluation of firm capabilities and issues that home and host supervisors need to consider.

Responses to the discussion paper should be sent to [email protected] by Friday 2 August. Consultation responses will determine whether the development of guidance would be useful. Responses to the consultation will be published on the FSB’s website unless respondents expressly request otherwise.

 

Public Disclosure of Resolution Planning and Resolvability: Discussion Paper for Public Consultation

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The FSB’s discussion paper explores how general and firm-specific disclosures on resolution planning and resolvability could be further enhanced, focusing mainly on disclosures of resolution planning for G-SIBs. However, many of the disclosure approaches discussed are also relevant for domestic systemically important banks and other firms subject to a resolution planning requirement.

Transparency with respect to resolution planning and resolvability is a necessary element of the FSB and G20 policy framework for addressing the moral hazard risk posed by systemically important financial institutions.

Responses to the discussion paper should be sent to [email protected] by Friday 2 August. Consultation responses will determine whether the development of guidance would be useful. Responses to the consultation will be published on the FSB’s website unless respondents expressly request otherwise.

 

FSB publicly consults on resolution-related disclosures and on the operationalisation of bank recovery and resolution

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Ref no: 18/2019

The Financial Stability Board (FSB) today published for public consultation two discussion papers that consider measures to improve the resolvability of global systemically important banks (G-SIBs).

Following the global financial crisis the FSB has led international efforts to address the risk that major financial institutions are too-big-to-fail. The adoption of the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions as the international standard for recovery and resolution of financial institutions and its implementation across FSB jurisdictions are core to this initiative.

Effective resolution rests on the credibility of authorities’ and firms’ resolution planning and operational readiness for handling a resolution. The FSB’s discussion papers focus on resolution-related public disclosures that strengthen the credibility of resolution planning; and on measures to ensure the effective operationalisation of a solvent-wind down of derivatives portfolios as recovery or resolution measure.

Public Disclosure of Resolution Planning and Resolvability

Transparency with respect to resolution planning and resolvability should help promote the credibility of the FSB and G20 policy framework for addressing the moral hazard risk posed by systemically important financial institutions.

The FSB’s discussion paper explores how general and firm-specific disclosures on resolution planning and resolvability could be further enhanced, focusing mainly on disclosures of resolution planning for G-SIBs. However, many of the disclosure approaches discussed are also relevant for domestic systemically important banks and other firms subject to a resolution planning requirement.

Solvent Wind-down of Derivatives and Trading Portfolios

Many G-SIBs have large derivative and trading portfolios, including in some cases with illiquid or exotic positions. A disorderly close-out of these portfolios can potentially propagate substantial risks to financial stability. Given the global presence of some G-SIBs and the cross-border nature of many of these portfolios (including the intra-group transactions arising from firms’ booking models) such financial stability risks could spread across borders.

This discussion paper sets out considerations related to the solvent wind-down of the derivative and trading book activities of a G-SIB that may be relevant for authorities and firms for both recovery and resolution planning.

Responses to the discussion papers should be sent to [email protected] by Friday 2 August. Consultation responses will be considered to determine whether the development of further guidance would be useful. Responses to the consultation will be published on the FSB’s website unless respondents expressly request otherwise.

Notes to editors

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

The FSB is also currently seeking feedback from stakeholders as part of its evaluation on the effects of the too-big-to-fail reforms that were agreed by the G20 in the aftermath of the global financial crisis.

FSB reports on work underway to address crypto-asset risks

31 May 2019

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Ref no: 17/2019

The Financial Stability Board (FSB) today published a report on crypto-assets, which considers work underway, regulatory approaches and potential gaps. The report is being delivered to G20 Finance Ministers and Central Bank Governors for their meeting in Fukuoka on 8-9 June.

International organisations1 are working on a number of fronts, directly addressing issues arising from crypto-assets. As described in the report, they are mainly focused on investor protection, market integrity, anti-money laundering, bank exposures and financial stability monitoring. They are monitoring and analysing developments in these markets, setting supervisory expectations for firms and clarifying how international standards apply to crypto-assets.

The report notes that gaps may arise in cases where such assets are outside the perimeter of market regulators and payment system oversight. To some extent, this may reflect the nature of crypto-assets, which may have been designed to function outside established regulatory frameworks. Gaps may also arise from the absence of international standards or recommendations.

Assessing the significance of potential gaps is challenging, given the rapidly evolving nature of the crypto-asset ecosystem and related risks. A forward-looking approach to monitoring crypto-assets can help provide a basis for identifying potential gaps and areas that should be prioritised or focused on.

The report concludes with a recommendation that the G20 keep the topic of regulatory approaches and potential gaps, including the question of whether more coordination is needed, under review.

Notes to editors

The FSB published its framework for monitoring of financial stability implications of crypto-assets in October 2018 and last reported to the G20 on the work of the international organisations in July 2018.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

  1. The report covers the work of the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI), the International Organization of Securities Commissions (IOSCO), the Financial Action Task Force (FATF), the Organisation for Economic Co-operation and Development (OECD), and the FSB. [←]