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FCA: Climate change “major threat to the future stability of the financial system”

City regulators have launched a panel to find ways of managing the “major threat” climate change poses to the financial system.

The FCA and PRA Climate Financial Risk Forum met for the first time last Friday.

The forum aims to advance the financial services’ industry response to risks posed by climate change. It is chaired by the PRA’s executive director of international banks supervision Sarah Breeden and the FCA’s executive director of strategy and competition Christopher Woolard.

The forum will meet three times a year and will report to the PRA chief executive and deputy governor at the Bank of England Sam Woods and the FCA chief executive Andrew Bailey.

The regulators said that while firms are enhancing their climate-related risk management they still face barriers with their “forward-looking, strategic approach to minimise these risks.”

The forum looks to reduce these bariers by “developing practical tools and approaches to address climate-related financial risks,” according to a statement to the press.

The forum brings together senior representatives from banks, asset management and insurers, and also includes observers from trade bodies.

Banks Insurers Asset managers Other
BNP Paribas Aviva Blackrock
Green Finance Institute
HSBC Legal & General Hermes
London Stock Exchange Group
JP Morgan Lloyd’s of London Invesco
RBS RSA Insurance Group Schroders
Yorkshire Building Society Zurich
Standard Life Aberdeen

Bailey said: “The first forum meeting today was an important step in tackling a major threat to the future stability of the financial system. The FCA and PRA have been working closely together, combining and building on our joint knowledge, to develop an approach which will enhance the UK financial system’s resilience to climate change.

“The Climate Financial Risk Forum will seek to encourage approaches in the financial sector, managing the financial risks from climate change as well as supporting innovation in green finance.’

“Orderly transition to a low-carbon economy – we need to act now”

Woods said:”Climate change has the potential to create significant financial risks for the firms the PRA regulates. The challenge we face in mitigating these risks is unprecedented, and we need to begin to act now if we are to ensure an orderly transition to a low-carbon economy.

“The establishment of the Climate Financial Risk Forum will provide a platform through which the PRA, FCA and industry can share experience and build expertise as we begin this work.”

At its first meeting, the forum decided to set up four working groups to focus on risk management, scenario analysis, disclosure, and innovation. Each working group will be chaired by a member of the forum and will meet more frequently than the CFRF, reporting back at each CFRF meeting.

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