Jan 15, 2021

Climate-focused financial regulation is coming to US banks

Ceres Accelerator
Climate Change
Banking
Sustainability
Ceres
3 min
Climate-focused financial regulation is coming to US banks
With the Biden administration set to take a leadership role in combating climate change, regulation of climate risk is coming to the US banking sector...

With the Biden administration set to take a leadership role in combating climate change and US financial regulators showing a newfound willingness to regulate climate risk, regulation of climate risk is coming to the US banking sector. Here’s what banks should do now.

Fully understand the risk

Banks should come to better understand the full range of physical and transition climate risks to which they may be exposed. A recent report from the Ceres Accelerator for Sustainable Capital Markets found U.S. banks are far more exposed to these transition risks than they’re currently disclosing -- and that their exposure could lead to destabilizing losses across the banking system if they don’t plan better for this transition. 

Understanding the systemic nature of climate risk is integral to assessing how much exposure a bank has and what moves it needs to take to mitigate that risk. 

Assess and disclose

We’re likely to see new financial regulation of climate risk in the U.S., but even without it, banks should assess and disclose their full exposure. Disclosure makes for more efficient markets, more resilient banks, and a more sustainable banking system. 

Effective disclosure means quantifying climate risk at both the firm and portfolio levels across all asset classes and business lines. And all banks should aim for disclosure that assesses the entire lending portfolio, including both historical emissions and forward-looking indicators of future performance, such as capital spend. 

Engage clients to mitigate risk

Equipped with a new understanding of what climate risk exposure means in the banking world, banks can start to work to mitigate those threats. They can start by leveraging their lending power to make sure their borrowers disclose their own emissions and lay out their plans for business in a significantly carbon-constrained world. By leaning on the companies in their portfolios to disclose their climate risk, banks can begin to get the full picture of their own exposure, which they can use to mitigate that risk by lending to companies well-positioned for long-term success and parting ways with those stuck in a carbon-intensive past. 

Set targets

With or without regulation prodding them along, banks should work to reduce their exposure to climate risk -- and measure the success of that work against concrete emissions reduction commitments that have detailed targets and specific timelines. Several US banks are starting to move in this direction, but we need more banks setting more ambitious goals.

Banks are both particularly vulnerable to climate change and particularly powerful to fight it. By leaning into this work, they can distinguish themselves from their peers and ensure investors, customers, and regulators that they are clear-eyed and proactive about the financial risk that climate change poses for themselves and for our economic system more broadly.

This article was contributed by Steven M. Rothstein, Managing Director of the Ceres Accelerator for Sustainable Capital Markets, and Dan Saccard, Senior Director of the Company Network, Ceres

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Jun 23, 2021

CMA warns UK and Irish banks over bank transaction histories

Banking
CMA
Monzo
NatWest
2 min
The UK’s Competition and Markets Authority has issued warnings to several high-profile banks in the UK and Ireland over customer transaction histories

Specifically, the CMA named prominent challenger bank Monzo, the Bank of Ireland, NatWest Group, and Virgin Money as not providing customers with records of their bank transactions within the maximum outlined timescale (40 days after closing the account).

Such information is crucial not only for ensuring a smooth transition from one bank to another, but also to provide a foundation for credit applications in the future. 

According to the Retail Banking Market Investigation Order 2017, 95% of bank and building society customers should receive their bank transaction histories in at least 10 days.

Reputation: A bank’s greatest asset?

Of the 150,000 customers affected, Monzo was by far the main contributor - 143,000 (95.3%) - with the other three dividing the remaining 7,000.

The extent to which the magnitude of its mistake is attributable to being a digital-only bank is not clear, although it may give some customers pause for thought. With a superior customer experience being among the bank’s greatest assets, continued reputational damage is something that it cannot afford to sustain.

Although the CMA’s action in this instance has been to issue each bank a warning and order the immediate dispatch of all outstanding information, it has warned that future breaches will carry heavier consequences. Measures could include legally enforceable compliance audits on a yearly basis.

Helping customers get a better deal

Condemning the banks for negligence that could negatively impact customers’ desires to take out loans or mortgages, Adam Land, CMA Senior Director of Remedies Business and Financial Analysis, promised that his organisation would remain vigilant to similar behaviour moving forward.

“Banks must comply with all the rules – that includes providing a full transaction history promptly.

“We will be watching closely to make sure these leading names stick to their word and don’t let their customers down again. The Bank of Ireland, Monzo, Natwest Group, and Virgin Money should be in no doubt that the CMA stands ready to take further action if these failures are repeated.

Image source: gov.uk

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