Bank of England mulls regulatory shake up to manage climate risks

The Bank of England has taken a step closer to imposing stricter rules on banks to ensure they step up their preparedness for climate change.

The Old Lady’s Prudential Regulation Authority (PRA) said today it is mulling a shake up of capital buffer structures to manage the potential risks of global warming.

It will publish the results of its findings in 2022. 

The PRA will intensify its scrutiny of financial services firms’ efforts to incorporate climate change into their business model over the next year.

Despite noting some firms had made progress in acknowledging the risks of global warming, others were lagging behind.

The PRA will “actively supervise to ensure firms meet expectations, with firms needing to demonstrate a good understanding and management of climate-related financial risks on an ongoing basis,” it said in a joint statement with the Financial Conduct Authority, The Pensions Regulator and the Financial Reporting Council.

Sam Woods, chief executive of the PRA, said: “Climate change and the transition to net-zero emissions will affect our planet, our economy and our financial system.

“As a prudential regulator, it is our job to ensure the financial institutions we regulate are prepared for these changes and able to play their part in supporting the transition.”

Firms that fail to demonstrate they are taking climate change seriously will face PRA action. This could include a skilled person report, which involves a third party examining a businesses’ standards, and a “deep-dive” audit.