Austin Tuell’s Post

In our latest monthly regulatory digest, we explore the growing linkage between climate policy and financial markets. The US's prevailing view once equated climate risk as more of a social good that was essentially outside most regulatory agencies' realms. Now, President Biden's whole-of-government approach has permeated financial regulatory agencies, drawing attention to the outsized role that financial firms and other large companies will play in decarbonizing the economy. With the Senate confirming Gary Gensler yesterday as the next SEC Chair, his tenure is expected to bring in new federal regulations requiring companies to disclose their contributions and exposure to climate change, including the financial losses they may face from extreme weather events and natural disasters.

Today’s announcement that the Federal Reserve is joining the Network of Central Banks and Supervisors for Greening the Financial System represents a major shift towards global alignment on climate risks. While many of the world’s central banks have led the way in developing a better understanding of how to assess the impact of climate change on the financial system, the pace of global alignment on this issue is expected to accelerate with new leadership in the US. The announcement also signals the growing recognition that, much like with the pandemic, the world continues to face another global crisis that does not respect boundaries – and that no individual nation, government, or industry can solve on its own. At Deloitte, we’ve given much thought to how climate risk may impact financial markets and alter the regulatory landscapes, which can all be found here.

One enduring theme of 2020 is the need for global regulators to access real-time data on the firms they regulate to better monitor financial markets. Recently, the New York Department of Financial Services (NYDFS) announced a "first-ever" tech sprint to prototype real-time regulatory reporting on the virtual currency firms under its supervision. With this initiative, NYDFS recognizes that virtual currency firms play a growing role in the financial system and share many of the same risks and concerns of other financial institutions. Bridging the gap between real-time data reporting, analysis, and risk management will be essential to how financial institutions and their regulators operate together, both in times of crisis and beyond. Below is our latest analysis of how technology and innovation shape global financial regulatory trends.

In recent weeks, financial regulators have undertaken several “first-of-its-kind” actions to create a framework for addressing climate risks as momentum continues to build on the issue post-election in the US. Last week, the Federal Reserve highlighted climate risks for the first time in its Financial Stability Report and signaled its intent to join the Network of Central Banks/Supervisors for Greening the Financial System -- a potentially major shift towards global alignment on climate-related financial risks. In our most recent publication, we analyze the New York Department of Financial Services' industry letter outlining expectations for financial firms and insurers integrating climate risks into their governance, risk management, and corporate strategies and what this means for Boards/senior management teams.

Amidst the backdrop of growing concerns over the pandemic and financial inclusion in the US, the Federal Reserve recently provided new details on its plans for supporting real-time payments, known as FedNow. In recent months, there have been major changes to how financial firms operate and what their regulators and supervisors expect, in addition to significant and broader economic impacts on society, businesses, and households. As just one example, the US government's recent experience delivering economic stimulus payments to vulnerable individuals may have encouraged the Federal Reserve to provide new details on FedNow as the need for real-time payments has accelerated. This analysis is part of our ongoing series on how technology and innovation shape financial regulatory initiatives and their impacts on the global payments system.

Amidst growing global interest in the use of digital assets, two US financial regulators (OCC & SEC) have recently partnered to provide regulatory clarity as an important next step in the maturation of stablecoins in the US. The rise of digital assets is often seen as representing a more permanent, fundamental shift in the marketplace that has increasing geopolitical dimensions for the US and China. This first major collaboration on digital assets between the OCC & SEC is the latest example of how financial regulators have sought to adapt the regulatory and supervisory environments to support innovation and economic competitiveness. For more insight, please see our latest take.

It’s been exciting to follow recent developments on climate-related financial risk—one of the fastest moving areas of global financial regulation that will have an important impact on companies, governments, society, and our planet in the years to come. In a first of-its-kind report by a US financial regulator, the CFTC took a major step forward in the US by assessing the impact of climate risks on the financial system and offering recommendations for how the US can better manage their effects and be more closely aligned with forward-leaning global jurisdictions. One of the most interesting areas of the report is its call for greater public-private partnership on innovation, including by launching climate finance labs at US financial regulators to speed along the development of climate risk products. We’d welcome discussing how to create a successful foundation for these climate finance labs to flourish in the US. Please see more of our insight into the meaningful change that may be on the horizon. https://lnkd.in/g9JTFu5

The Federal Reserve’s Board of Governors announced changes to a policy statement on its stress testing scenarios, noting that the collapse of the Bitcoin market may be considered a “salient market risk” along with other “extraordinary shocks” including war with North Korea or major losses caused by trader misconduct. The potential change follows Fed Vice Chairman Randal Quarles’s recent comment that “developments like the emergence of crypto-assets may challenge any framework” for assessing financial risk. #fintechupdate #emergingrisk

“Machine learning and artificial intelligence are set to transform the banking industry, using vast amounts of data to build models that improve decision making, tailor services, and improve risk management. According to the McKinsey Global Institute, this could generate value of more than $250 billion in the banking industry.” #GARPrisk https://lnkd.in/dJHpJYD