The World Council of Credit Unions urged the Basel Committee on Banking Supervision to include proportionality in its Principles for the Effective Management and Supervision of Climate Related Financial Risks. The comments came as a response to the Basel Committee’s request for comments on its efforts to address the physical and transition risks that could affect the safety and soundness of individual financial institutions as a result of climate-related financial risks. The Basel Committee is looking to strengthen the regulation, supervision, and practices of financial institutions worldwide.
WOCCU urged the Basel Committee to provide clear guidance for prudential supervisors that a proportional and risk-based approach is necessary not only to prevent overburdensome regulation on smaller financial institutions, but to advance the Commission’s objective to bolster financial inclusion.
The principles seek to impose numerous requirements for credit unions in addressing climate-related risks including and internal control framework, capital and liquidity adequacy requirements, a risk management process, management monitoring and reporting requirements, comprehensive management of credit risk requirements, comprehensive management of market, liquidity, operational and other risks, and scenario analyses.
While WOCCU supports addressing climate-related risks, these requirements need to be in proportion to the size, risk and complexity of the institution.
A copy of the letter can be viewed here.