Regulatory Alerts2023-01-12
Added · Updated
Frequently asked questions on climate-related financial risks
The Hong Kong Monetary Authority issued this circular to incorporate Basel Committee on Banking Supervision responses regarding climate-related financial risks into its supervisory framework. The guidance clarifies how these risks should be captured under existing Basel Pillar 1 standards, specifically addressing risk-weighted asset calculations for credit, operational, and market risks, as well as the Liquidity Coverage Ratio. Authorized institutions are required to consider these FAQs when interpreting and applying the Basel Framework to ensure globally consistent implementation without altering the underlying standards.
Banking Policy Department Our Ref: B1/15C B9/197C B4/1C B4/9C 12 January 2023 The Chief Executive All Authorized Institutions Dear Sir/Madam, Frequently asked questions on climate-related financial risks The Basel Committee on Banking Supervision (BCBS) has recently issued responses to a number of frequently asked questions (FAQs) to clarify how climate-related financial risks may be captured in the existing Basel Framework1 . The responses to FAQs are intended to facilitate a globally consistent interpretation of existing Pillar 1 standards given the unique features of climaterelated financial risks and should not be interpreted as changes to the standards. The responses are consistent with the BCBS’s Principles for the Effective Management and Supervision of Climate-related Financial Risks 2 . Areas covered in the FAQs include: (1) Calculation of risk-weighted assets (RWA) for credit risk; (2) Calculation of RWA for operational risk; (3) Calculation of RWA for market risk; and (4) Liquidity Coverage Ratio. The HKMA intends to incorporate the responses to the FAQs into our supervisory framework. Authorized institutions should take note of them when considering how to incorporate climate-related financial risks in their interpretation and application of the existing Basel Framework. 1 Please see https://www.bis.org/bcbs/publ/d543.htm 2 Please see https://www.bis.org/bcbs/publ/d532.htm
2 Should you have any questions, please contact Mr Willy Mak (2878-1219) or Mr Roy Chan (2878-8717). Yours faithfully, Daryl Ho Executive Director (Banking Policy) cc: The Chairperson, The Hong Kong Association of Banks The Chairperson, The DTC Association FSTB (Attn: Mr Justin To)
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