Welcome to Banking News, the KPMG Ireland Quarterly Banking Newsletter, which has been designed to bring together useful insights and developments that are relevant to the banking industry.
We hope you find the articles below of interest. If you would like further information on any topic or have any questions, please feel free to contact any member of the KPMG Banking team.
Taking a holistic approach to ESG risks within risk management can deliver clear and tangible outcomes that move financial institutions toward a more effective, efficient and sustainable CRO function. KPMG have produced a report which looks at ESG risk drivers and sustainability issues in the banking sector, highlights various options to embed them into risk management frameworks, in particular stress testing, and draws parallels to the current COVID-19 crisis.
Climate risk and other ESG risks have become an increasingly dominant theme of political, social and economic debate. Despite the difficulty of addressing these risks – most notably, the lack of reliable and consistent data – many banks have begun to incorporate ESG factors into their risk processes and strategic planning. Now, banks’ readiness to measure and manage climate and ESG risks is about to be tested.
The EU’s sustainable finance and climate change agenda has brought forward a package of sustainable finance legislation. The Taxonomy Regulation Disclosures sit alongside the Sustainable Finance Disclosure Regulations (SFDR) and the Low Carbon Benchmarks Regulation as part of this package.` The Taxonomy Regulation establishes an EU framework for classification of sustainable economic activities. It aims to provide transparency to investors and businesses and to prevent “greenwashing” by defining the criteria under which a financial product or activity can be described as “environmentally sustainable”.
Senior Executive Accountability Regime
On 27 July 2021, the Department of Finance released the General Scheme of the Central Bank (Individual Accountability Framework) Bill 2021. This outlines the draft Heads of Bill to address the Central Bank of Ireland (“CBI”)’s proposals for an Individual Accountability Framework (“IAF”) and Senior Executive Accountability Regime (“SEAR”) originally proposed in 2018. The draft legislation indicates that the SEAR will cover banks, insurance and investment firms and third country branches of the above in the first instance. KPMG have produced an article “SEAR – 6 questions to ask your business” which seeks to prepare institutions for the impending impact of SEAR.
Operational Resilience and Outsourcing
KPMG has produced several thought leadership pieces in this area which considers how regulatory perspectives on operational resilience are developing, how the landscape has shifted as a result of COVID-19 and what financial services firms can do now to strengthen their operational resilience through the recovery and beyond.
While the survey of bank staff shows progress is being made internally across all member banks, the results of the public trust survey show those internal changes in culture have yet to resonate with the majority of bank customers. KPMG Ireland have produced a report “Bridging the Gap” which provides full insights on the Éist survey findings and the firm’s view on the path forward that banks must take to evolve public trust levels.
Social considerations fall within the broad panoply of sustainable finance and one aspect - diversity - is attracting increasing regulatory attention. Regulators are increasingly recognising that good diversity and inclusion (D&I) practices help to reduce risk for regulated firms by ameliorating “groupthink” and are calling out pay gaps. KPMG have produced an article “Diversity: a social and regulatory concern” which addresses the increased regulatory focus on diversity.
For more information on how KPMG can help, please contact Ian Nelson.
The Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP) – or together, simply ICLAAP are key tools for managing banks’ capital and liquidity. This report aims to help banks critically reflect on the observed value of their ICLAAP over the recent months - their “ICLAAP performance”. It identifies two important lessons learned from the COVID-19 pandemic and closes with some key fields of action to improve banks’ ICLAAP approach in the post COVID-19 world.
The EBA have published the latest results of their biennial EU Stress Testing exercise. This years’ exercise – postponed from 2020 - is particularly significant given the events that have occurred since the 2018 exercise, namely Brexit and the COVID-19 pandemic. In this article we consider the key performance drivers for the significant institutions that took part in the EU wide exercise set by the EBA. In particular we focus on the drivers behind level of Common Equity Tier 1 (CET1) capital depletion in the Adverse scenario (i.e. the amount of initial capital eroded through the forecast period in the stressed scenario).
There are common regulatory and supervisory themes emerging from the 2021 work plans of three of the main global regulatory bodies. These themes will inform the work of EU and national regulators and therefore indicate areas that firms should consider in their regulatory change management programmes. This article was supported by the publications of “New Regulatory Priorities emerge” which focused on the UK and EU.
2021 has seen an incredibly strong start to the year for the global fintech market. As you’ll see from this edition of Pulse of Fintech H1 2021, the rebound we saw in H2’20 continued into H1’21, with very robust investment across VC, PE, and venture capital. We saw growing deal sizes in a wide variety of fintech subsectors — from wealthtech and regtech to crypto and cybersecurity. If there was a word that could be used to describe H1’21, it would be: diversity.
How can KPMG help?
KPMG has a large team of professionals with extensive knowledge and expertise in Financial Services, Banking, Aviation Finance, Insurance and Asset Management. KPMG Ireland can leverage a network of multidisciplinary professionals, stretching across Europe and beyond. Supported by this global network, KPMG Ireland can provide a broad range of support, advice and guidance on how to address the challenges you face.
Head of Financial Services & Regulatory
KPMG in Ireland