And announced in the Green Finance Strategy that from this year the FPC remit letter will require that they have regard to the COP21 Paris Agreement when considering how to advance objectives and discharge their functions. In taking these actions, the Government has in effect reduced the FPC’s discount rate on climate-related financial risks. This means that GDP-at-risk will now grow more quickly in the FPC’s loss function. And by responding to this, the FPC will reduce climate-related exposures, and the private financial sector will help to pull forward the adjustment to net zero for the economy as a whole. There are three main areas macroprudential policymakers can act. 33 On reporting, climate disclosure standards under the TCFD must be enhanced to be as comparable, efficient and decision-useful as possible. And we need to develop pathways to mandatory climate disclosures. To manage risks, disclosures need to go beyond the static to the strategic. The Bank of England with the PRA and FPC will run the world’s first integrated bottom-up climate stress test for banks and insurers, including the catastrophic business-as-usual scenario, the ideal – but still challenging – transition to net zero by 2050, and the late policy action climate ‘Minsky moment’ scenario including economy-wide disruption that a delayed and disorderly transition will bring. Our stress test of the world’s leading international financial centre will show how major financial firms expect to adjust their business models, as well as the potential collective impact of these responses on the wider economy.
2  BIS central bankers’ speeches  2. Resources: On the resource front, we are seeing firms struggle to secure and retain sufficient expertise in some areas, with firms competing for the talent needed to implement the new standards. Firms need to get better at planning in advance, ensuring their recruiting efforts are providing a steady stream of qualified candidates, and looking for opportunities to move people around within the organization, particularly between the front office and control functions, for more well-rounded professions. This is likely to mean more aggressive, creative and targeted searches and a commitment to ongoing training. As the landscape and regulatory requirements change, firms will need to find the right balance between hiring new talent with specific expertise and training current staff to keep them up to speed and capitalize on institutional knowledge. 3. Regional coordination: Cross-functional regional coordination across business areas is necessary, as is coordination across regulatory change programs (EPS, Volcker, Derivatives, RRP, etc.). In addition, FBOs will have to manage several regulatory layers of risk governance including meeting the demands of their home regulator and various host country regulators. 4. Capital Planning, Liquidity and Stress Testing: As firms become more accustomed to – and experienced with – the range of stress testing and capital requirements, there should be greater appreciation for the expectations around governance, quality of modelling, quality and granularity of data, and the level of coordination needed with the head office.