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CFTC releases a Request for Information on climate-related financial risk

Date:
September 19, 2022
  • kim johnston headshot

    Authors

    Kim Johnston

    Director
    Regulatory Advisory

    Financial Institutions | Denver, CO

  • erin kelly headshot

    Authors

    Erin Kelly

    Director
    Regulatory Advisory

    Financial Institutions | Kennett Square, PA

In June, the Commodity Futures Trading Commission (CFTC) released a Request for Information (RFI) on climate-related financial risk, and they have recently extended the deadline for comment until October 7. Regulators signal that climate-related issues will remain near the top of their agendas, so we wanted to ensure that our clients and the market were apprised of the RFI and could submit comments.

In 2021, President Biden signed an executive order targeting climate-related disclosure and mitigation in the financial sector. It specifically called out financial institutions for their failure to quantify and take steps to alleviate the impact of climate risks. As a result of the executive order, all members of the Financial Stability Oversight Council (FSOC) will be required to report to the President on their new policies and procedures addressing climate-related financial risks and related matters. This RFI is the CFTC’s method of soliciting feedback on how it should implement these mandates.

In seeking to understand how derivatives market participants, including end-users, consider climate-related matters, the CFTC is interested in how risk management frameworks would need to be modified and the impacts on trading, advisory, and hedging business lines.

Examples of the relevant questions include:

  • Would it help regulators, the market, and/or the public to understand or manage climate-related financial risk if the CFTC needed climate-related fields in its Part 43 and 45 swap data reporting?
  • Should swap dealers incorporate climate stress tests into their risk management processes? Do they have the current capability for this? If not, what would be needed?
  • Are there ways that CFTC regulations could better address climate-related financial risk, including credit, market, intermediary, operational, and financial risk?
  • Should the CFTC consider amending its minimum capital and liquidity requirements to better recognize climate risk?

While Chatham does not have plans to submit a collective comment letter, we encourage you to reach out to your counsel to discuss possible ramifications should this Proposed Rule become final.

About the authors

  • Kim Johnston

    Director
    Regulatory Advisory

    Financial Institutions | Denver, CO

    Kim is a Director of Regulatory Advisory for Chatham’s Financial Institutions team where she advises banks and credit unions on the impacts of global derivatives regulation.
  • Erin Kelly

    Director
    Regulatory Advisory

    Financial Institutions | Kennett Square, PA

    Erin Kelly is a Director of Regulatory Advisory for Chatham’s Financial Institutions team. She reviews and negotiates derivatives documentation on behalf of banks and credit unions.