Climate Change

According to The Banker publication in April 2023, the UK Government will have the ability to override decisions of the regulators, on climate risk requirements. Therefore, it may be that the Government could impose more stringent deliverables on firms, perhaps on disclosures, progress towards net zero targets or rules on ‘green’ products.

Linked to the importance of climate change, is the possible regulation of Environmental, Social and Governance (ESG) ratings providers. HM Treasury issued a consultation paper in March. In Whistlebrook’s opinion, ratings may become increasingly important, in terms of their influence on lending and investment policies of firms. Any future regulation will apply to organisations that supply ESG ratings to UK based users that have paid for the service. The idea is that the regulation will ensure that there is clarity on the methods used to derive ratings and how they should be interpreted. Given the infancy of climate change data collection, regulated providers would need to explain how any gaps are treated in their calculations.

Additionally, in a Climate Risks and Capital Framework’s paper issued by the Bank of England in April, the regulator referred to the need to include climate risk within a firm’s ICAAP. Whistlebrook understands that climate risk is yet another challenge for firms and is likely to present itself as an increasing priority. Additional stress testing and scenarios to give a better view of any additional capital requirements, may become more important. It is Whistlebrook’s view that climate change is not all doom and gloom, in the sense that the risk will offer opportunities through green products and investment in environmentally friendly initiatives.

Data Collection Transformation

The Bank of England delivered a Town Hall event in March that provided an update on the transformation project, understood to be in its second year of five. Of note, were the following.

Commercial Real Estate

The regulator stated that the fundamental barriers to getting quality data, have been identified. Design work of a solution to these issues, is underway.

Collection System

It is planned that there will be a single system that the regulators will use for data collection. If this change becomes a reality, it may offer greater simplicity. That said, the timing of the introduction of only one collection system was not specified.

Firm Portal

The regulator advised its intention that the RegData portal will provide feedback to firms, via a Dashboard, on their submissions. Institutions will be able to see at a glance, data held by the regulator. The timing on which this portal will become available has not been specified just yet.

UK Countercyclical Capital Buffer

For exposures to UK counterparties, the buffer will be increased from 1% to 2% from 5 July 2023. Further details are in https://www.bankofengland.co.uk/financial-stability/the-countercyclical-capital-buffer.

WIRES® Releases

Time of Release	Reason for Release
June 2023	·         Expansion of the audit history feature ·         Use of the Cloud ·         Fixes
September 2023	·         Basel 3.1 (subject to provision of the taxonomy) ·         Addition of new Contingent Leverage Ratio templates for ‘LREQ’ firms ·         Bank of England taxonomy 1.3.0 for Issuing Paying Agents (IPA) form ·         Enhancements and any fixes

 

This regulatory update is Whistlebrook’s understanding of the position as at 24th April 2023.