Regulatory Pressure Builds Around Climate Change Risk
July 14, 2021
Last week, the Washington State Department of Financial Institutions released an alert to the financial services industry that emphasizes the role financial institutions play in addressing climate change as a systemic risk. The alert comes on the heels of similar guidance from the New York State Department of Finance in May.
While the alert does not provide any new rules or guidance, it does share background information on climate change and affirms the importance of responding to this critical issue. The DFI encourages Washington State financial institutions to begin discussions about how to integrate climate change risks into their governance, risk management, and strategic plans. During upcoming exams, the DFI will begin talking with credit unions about whether they are evaluating these risks (physical and transition, and the risk to economically vulnerable communities), and if so, how they plan to address them.
Recent National Developments
The alert notes that the systemic risks from climate change are a concern at the national level too, with the Biden Administration issuing an Executive Order on Climate-Related Financial Risk. “The failure of financial institutions to appropriately and adequately account for and measure these [climate-related] physical and transition risks threatens the competitiveness of U.S. companies and markets, the life savings and pensions of U.S. workers and families, and the ability of U.S. financial institutions to serve communities.”
To address this risk, President Biden has ordered the Secretary of the Treasury, as chair of the Financial Stability Oversight Committee, along with the FSOC members (which includes the National Credit Union Administration) consider the risks to the financial stability of the U.S. financial system, facilitate the sharing of data, and issue a report on efforts by FSOC member agencies to integrate climate-related risk into their policies and programs. The report is to include not only recommendations from the agencies for risk mitigation in terms of operations and programming but also new or revised regulatory standards for regulated entities.
The potential for new guidance and regulations may not be limited to just the operations of financial institutions; it may also have a future impact on lending supported by government agencies as President Biden’s Executive Order also instructs the Secretary of Agriculture, the Secretary of Housing and Urban Development, and the Secretary of Veterans Affairs to “consider approaches to better integrate climate-related financial risk into underwriting standards, loan terms and conditions, and asset management and servicing procedures, as related to their Federal lending policies and programs.”
Question of the Week
Q. Is there a legal requirement to contact Adult Protective Services if a credit union has reason to believe that an elderly member may be a victim of abuse (financial, neglect, etc.)?
A. Although there is not a requirement to contact Adult Protective Services if a credit union suspects abuse of a vulnerable adult or financial exploitation, it is suggested that the credit union do so. Any privacy concerns should be mitigated by the fact that the law shields persons from liability who report suspected exploitation or abuse in good faith. The shield protects individuals even when the report is made over the phone.
Financial institution employees are considered permissive reporters in Idaho, Oregon, and Washington. Permissive reporters may report to their local Adult Protective Services or a law enforcement agency when there is a reasonable cause to believe that a vulnerable adult is being financially exploited or abused. It may also be appropriate to file a Suspicious Activity Report.
The Consumer Financial Protection Bureau maintains several resources for financial institutions to identify financial exploitation, report it and help prevent it on its website.
Office of Foreign Assets Control: OFAC has updated the SDN list as of July 2. The last update prior to this was June 28.