FINMA Focuses on the Climate Risks in the Financial Sector

The Swiss Financial Market Supervisory Authority FINMA in frame of its supervisory remit is dealing with a problem of financial risks dependent on the climate and is looking for new regulatory methods for improving financial transparency by banking institutions. This initiative aligns with Switzerland's broader discussion on ESG matters, as reflected in the sustainable finance reaction to proposed regulatory approaches.

FINMA deals with analyzing the interdependence between the climate and financial sector. It works together with the federal government and the State Secretariat for International Financial Matters (SIF) and addresses the question of sustainability in the financial economy. Since 2019 FINMA has been also a member of the Network for Greening the Financial System, which explores all the aspects of financial risks of climate change. Participation in such global efforts complements national regulatory developments, including the implementation of FINMA follow-up regulations that address technical compliance measures.

FINMA protects creditors, investors and insured persons and monitors financial market activity.

In the context of its permit FINMA deals with risks resulting from climate changing. So, for example, climate change, including natural disasters, can be cause of the physical risks for market members, especially for insurance companies and at the same time, by climate policy actions the financial institutions can influence the transition risks. These considerations are particularly critical for supervised entities, such as those governed under the FINMA fourth organisation, which require robust governance in risk-sensitive sectors.

FINMA's aim is to control the regulating of these risks by money institutes. According to the law financial institutions must manage the risks, connected with climate change and, if it is needed, to explore other methods for these risks' obviation. This requirement parallels evolving expectations seen in other financial innovation spaces, such as the licensing processes tied to the Libra payment licence.

In regard with protection of consumer's rights FINMA keeps under review the risks of so-called greenwashing by providing financial services. Ensuring ethical conduct in sustainability claims supports the integrity of the financial system and complements Switzerland’s reputation, as highlighted in the Goldblum IFLR recognition.

At the regulatory level FINMA addresses the concepts focused on the detection of financial climate risks by money institutions with the purpose of transparency and market discipline improving.