BPInsights: March 26, 2022

Stories Driving the Week

SEC Wants More Climate Data, But Gaps Pose a Challenge

The Securities and Exchange Commission voted this week to propose enhanced requirements for public companies to disclose climate risks to investors. The SEC’s proposal aims to provide a consistent, comparable regime on climate risk disclosures, but the breadth of the proposal will present challenges for registrants given data gaps and challenges around assurance of climate disclosures. It is unclear whether all of the required disclosures will translate into decision-useful information for investors.

What BPI is saying: “The SEC’s action targets a topic that is increasingly important to investors, and therefore it is important for the SEC to take a measured approach, recognizing the challenges associated with detailed climate disclosures and assurance processes. Banks are already actively engaged in initiatives aimed at giving consumers, investors and regulators a transparent view of climate-related financial risks. The SEC has recognized the need for appropriate transition periods for disclosing and providing assurance around Scope 3 emissions, in particular; however, the proposal may be overly ambitious given persistent data gaps.  As a result, the SEC should proceed in a more measured and considered manner in terms of requirements for what must be included in financial filings.” – Lauren Anderson, BPI senior vice president and associate general counsel.

Why it matters: Climate disclosure requirements could result in changes to capital flows as investors look to reallocate capital among companies worldwide as the green economic transition unfolds. For banks, climate disclosures necessarily rely heavily on third-party or client data, which still has significant data gaps.  Disclosures based on inaccurate information or proxy data points could imperil the ultimate goal of providing investors useful information. The U.S. disclosure regime, with associated liability standards, could have a chilling effect on corporates’ climate-related disclosures and commitments.

Banking is Competitive. Scale Helps It Stay That Way.

The FDIC on Friday released a request for information on the regulatory framework that applies to bank merger transactions. The premise that bank M&A rules and guidance need tightening misses the big picture. With thousands of banks, the U.S. banking system is the most competitive in the world and much less concentrated than other industries serving U.S. customers. In addition, banks already face stringent merger review standards from the banking agencies, which ensures that only mergers meeting high standards in areas like anti-money laundering safeguards and financial stability will pass muster. The FDIC should ensure that it does not undermine the goal of a competitive banking marketplace by denying banks the opportunity to compete with FinTechs on fair terms.

What BPI is saying: “Bank mergers enable economies of scale that support communities, protect consumers from cyber breaches and keep lending costs low,” President and CEO Greg Baer said. “The FDIC should bear in mind that competitive landscape as it seeks information on merger rules and guidelines.”

Why it matters: Banks are facing high costs as they strive to meet consumer demand for seamless apps, robust cybersecurity protection and innovative products and services. They’re competing against FinTechs and Big Tech companies that often have higher market share and less oversight: no on-site examiners, no capital and liquidity requirements and far fewer data privacy restrictions.  Mergers can help banks provide better products and services to both rural and urban areas.  

A deeper look: For more on how bank mergers serve consumers and enable innovation, see BPI’s work here.

In Buy-Now-Pay-Later, Up-Front Transparency is Key

What’s happening: BPI commented this week on the CFPB’s evaluation of five Buy-Now-Pay-Later providers. BPI makes six recommendations to the Bureau intended to better protect consumers and their data when using BNPL products, including by requiring product providers to increase transparency and enhance data privacy and cybersecurity.

What BPI is saying: “Buy-Now-Pay-Later products offer consumers the flexibility to purchase a product and pay for it over several weeks, but the terms are not always clearly disclosed to consumers,” stated Paige Pidano Paridon, BPI senior vice president and associate general counsel. “Consumers deserve honest information about how much they will owe, when to pay and what recourse they have if they encounter issues with a product or merchant, regardless of how they choose to check out.”

To learn more about BNPL products and BPI’s recommendations, click here.

U.K. Aligns with EU Timeline on Basel Rules

The U.K. plans to delay implementing the final round of Basel III bank capital rules until January 2025, bringing the nation in line with the European Union’s timeframe. The Bank of England announced it would publish a consultation paper in the fourth quarter of this year on how it plans to implement Basel III endgame in the U.K. For more context on Basel III endgame and the potential costs to U.S. businesses, see our factsheet here.

CBDC Must-Haves, Crypto Risks: What Powell Said This Week

Federal Reserve Chair Jerome Powell this week outlined four key traits a U.S. central bank digital currency must have: identity verification, intermediation, privacy protections and widespread acceptance as a payment method. He reiterated no decision has been made on whether to proceed with a U.S. CBDC.

  • Digital asset risks: Some crypto assets could pose financial stability risks, Powell said. “We don’t know how some digital products will behave in times of market stress.”
  • Rule rewrite? Some financial technologies could demand regulatory or legislative changes to address the risks they pose to the financial system, he said.
  • Inside the perimeter: Financial activities outside the “regulatory perimeter” will likely be brought within it, Powell said. He also said the Fed would be guided by the concept of “same activity, same regulation,” with activities outside the regulated banking system needing to be subject to the same rules as equivalent activities within it.

What Else is New in Crypto

  • Stablecoin consensus: The U.S. government is making progress in developing a framework to regulate stablecoins, senior Treasury official Nellie Liang said at a conference this week. Treasury and Congress are working together on various proposals, she said, with “broad agreement” that stablecoin risks must be addressed.
  • CBDC hub prototype: A group of central banks and the Bank for International Settlements have developed prototypes for a digital currency platform to enable more efficient cross-border payments. Banks could use a shared platform to transact with one another in CBDC, according to a Bloomberg article. The project included the central banks of Australia, Singapore, Malaysia and South Africa.
  • BoE pushes for tougher crypto regs: Bank of England meeting minutes from March show officials calling for enhanced global crypto regulation and coordination.
  • IOSCO DeFi warning: Decentralized finance, or DeFi, platforms pose several risks, including hidden conflicts of interest, according to a new IOSCO report cited in the Financial Times.
  • Meanwhile, in Canada: The Ontario Securities Commission published an agreement with crypto exchange Binance in which the platform promises to adhere to restrictions on its operations in the Canadian province. The document lays out several instances of Binance previously lying to the regulator about complying with restrictions.

U.S. Unveils New Sanctions on Russia

The U.S. announced new sanctions on Russia this week, targeting key Russian defense firms, the chief executive of Sberbank and hundreds of Russian lawmakers. The actions also included new guidance on transactions with Russia’s central bank that aim to curtail its ability to deploy foreign reserves and gold. The Administration announced the measures during President Biden’s trip to Europe to meet with NATO allies. The EU and U.S. reached an agreement to route U.S. natural gas to EU member states to help Europe reduce its reliance on Russian fuel, according to Bloomberg.

In Case You Missed It

As Biden Warns on Cyberattacks, Banks are Prepared

President Biden recently urged U.S. businesses to shore up defenses against potential Russian cyberattacks. The U.S. banking system so far has remained unscathed, but prepared for the worst. Experts discuss the risk of a “digital Pearl Harbor” for the financial system in this American Banker article.

Bitcoin’s Green Rebrand – or Noisy Energy Drain?

Some Bitcoin miners are trying to recast themselves as environmentally friendly, according to The New York Times. But that rebranding contrasts with the energy-intensive, noisy process of Bitcoin mining, as described in The Washington Post’s cautionary tale of what happened in a small Appalachian town when Bitcoin miners moved in.

Fed Approves Citizens’ Investors Acquisition

The Federal Reserve this week approved Citizens Financial Group’s acquisition of Investors Bancorp. As a condition of the approval, Citizens must participate in the 2023 stress tests to recalculate its stress capital buffer.

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The views expressed do not necessarily reflect those of the Bank Policy Institute’s member banks, and are not intended to be, and should not be construed as, legal advice of any kind.