Greg Kilminster
Head of Product - Content
Supervised benchmarks administrators to undergo compliance assessment by ESMA
The European Securities and Markets Authority (ESMA) has announced the upcoming launch of a Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on ESG disclosures under the Benchmarks Regulation (BMR).
The CSA will focus on supervised benchmarks administrators and assess their compliance with BMR. The goal is to enhance transparency and address greenwashing, protecting investors and supporting the development of a credible ESG market.
ESMA and the NCAs will share knowledge and experiences to foster convergence in how they supervise ESG disclosure requirements for benchmark administrators. The CSA will be carried out during 2024 and until Q1 2025.
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EIOPA issues CP on prudential treatment of sustainability risks
The European Insurance and Occupational Pensions Authority (EIOPA) has issued a Consultation Paper (CP) about the prudential treatment of sustainability risks. This paper builds upon a discussion paper (DP) released in 2022 and considers feedback from the public, the Platform on Sustainable Finance, and the European Banking Authority. After consultation with the European Systemic Risk Board, the DP and CP will form the basis of a report to be submitted to the European Commission.
The CP focuses on three conceptual areas suitable for a risk-based analysis:
- The possible connection between prudential market risks and transition risks
- The possible connection between non-life underwriting risks and climate-related risk prevention measures
- The possible connection between social risks and prudential risks.
EIOPA acknowledges that the analysis presented in the CP has limitations. As a result, EIOPA does not recommend policy options in all areas studied and does not express a preference between the options proposed. Challenges highlighted include:
- The sample size of certain asset portfolios in the analysis is relatively small due to general data constraints.
- The limited sample size covered in the analysis might not reflect the overall exposure of insurers to transition risks.
- Reliable firm-specific characteristics affecting the (long-term) transition risk exposures of firms are difficult to obtain as further input data for the analysis since legally binding transition plans of firms are not yet available.
- Technical challenges in isolating transition risks from other risk drivers, such as the impact of the COVID-19 shock on asset prices.
- The exact extent to which credit ratings reflect transition risks remains unclear at this stage.
EIOPA invites comments on the consultation paper until 22 March 2024.
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Credit Suisse to pay $10 million to settle charges
Credit Suisse Securities (USA) LLC and two affiliated Credit Suisse entities have agreed to pay more than $10 million to settle charges by the Securities and Exchange Commission (SEC) that they provided prohibited underwriting and advising services to mutual funds and employees’ securities companies.
The SEC’s order finds that the Credit Suisse Entities continued serving in these prohibited roles until the Commission granted them time-limited exemptions on 7 June 2023. Credit Suisse was acquired by UBS Group AG on 12 June 2023.
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Australian life insurance industry under scrutiny over premium increases
The Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) have jointly issued a letter to life insurers and friendly societies in response to concerns raised in December 2022 regarding industry practices in relation to premium increases.
The letter outlines the findings of the regulators’ review of life companies’ practices. It identifies areas that require further industry focus, including premium increases, disclosure and marketing materials, and product design.
The letter also highlights the regulatory expectations of life companies going forward, which include the need for sound risk management and compliance assurance around re-rating practices. Life companies should ensure that any contract terms allowing for premium increases are transparent and not unfair. They should also clearly explain how premiums are calculated and may change over the life of the policy. Moreover, life insurance products should be designed and priced considering consumers’ need for premium stability.
APRA and ASIC are committed to monitoring the progress of life companies in meeting regulatory, consumer, and community expectations of pricing decisions, marketing and disclosure, as well as product design. They aim to ensure better consumer outcomes and will consider appropriate regulatory action if their expectations are not met.
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FASB new standard for crypto assets
The Financial Accounting Standards Board (FASB) has published an Accounting Standards Update (ASU) intended to improve the accounting for and disclosure of certain crypto assets.
The new standard, which is effective for fiscal years beginning after 15 December 2024, will require entities to measure crypto assets at fair value and recognise changes in fair value in net income. The FASB also clarified the criteria that assets must meet to be considered crypto assets: the amendments in the ASU apply to assets that meet all of the following criteria.
- Meet the definition of intangible asset as defined in the FASB Accounting Standards Codification
- Do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets
- Are created or reside on a distributed ledger based on blockchain or similar technology
- Are secured through cryptography
- Are fungible
- Are not created or issued by the reporting entity or its related parties.
The FASB is also allowing early adoption of the new standard for both interim and annual financial statements that have not yet been issued or made available for issuance. If the new standard is adopted in an interim period, it must be adopted as of the beginning of the fiscal year that includes that interim period.
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NGFS issues report for future development of nature-related scenarios
The Network for Greening the Financial System (NGFS) has recently released a technical document that provides recommendations for the development of scenarios that can help assess nature-related economic and financial risks. The technical document was created based on a thorough literature review and external expert input. It serves as groundwork for future development of nature-related scenarios that can help central banks and supervisors assess the potential impact of nature-related physical risks and transition policies on economies and financial systems.
In developing this technical document, the NGFS highlights specific challenges:
- Certain features of nature-related risks cannot be captured by a single metric, and assessments must consider specific biomes, regions, and sectors.
- The models currently used for climate scenarios may not be suitable for capturing all nature-related issues, and more models and approaches may be needed.
- Understanding the potential indirect impacts throughout value chains of nature-related risks is essential to appreciate the full extent of such risks.
To address these challenges, the publication:
- Envisions consistent narratives that can identify different sources of physical and transition risks.
- Explores various methods and tools, including models and data needs, to assess the economic and financial impacts of these hazards and the ability to mitigate them.
- Provides a list of options for central banks and supervisors to develop nature-related scenarios in both the short and long term.
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