The CFTC voted to establish a Climate-Related Market Risk Subcommittee under the CFTC's Market Risk Advisory Committee ("MRAC"). Commissioner Rostin Behnam, sponsor of the MRAC, announced that the CFTC is accepting applications for membership.
The subcommittee is charged with preparing a report to the MRAC that will "identify and examine climate change-related financial and market risks."
According to Mr. Behnam, the subcommittee may consider:
- issues or barriers to assessing and managing climate-related financial and market risks;
- ways in which market participants can improve the "integration of climate-related scenario analysis, stress testing, governance initiatives, and disclosures into financial and market risk assessments and reporting";
- best practices for risk management and disclosure of climate-related financial and market risks; and
- how market participants' data and analyses can be improved and help in the assessment of climate-related financial and market risks and their potential effect on "agricultural production, energy, food, insurance, real estate, and other financial stability indicators."
According to the Notice published in the Federal Register, nominations for membership must be submitted by September 9, 2019.
Commentary / BOB ZWIRB
Establishing a subcommittee within the CFTC to address climate-related financial risks raises two potential problems. The first has to do with the mission of the CFTC, which is to oversee the derivatives markets. To the extent those risks require disclosure to investors, as Commissioner Behnam suggests, such information is relevant primarily to the financial products that underlie such derivatives, not to the derivatives. That is, to the extent investors need to know about such risks, the SEC and the banking agencies, as the direct regulators of the issuers of the relevant underlying financial instruments, rather than the CFTC, are the appropriate regulators.
The second problem has to do with the establishment of yet another platform that may simply become an arena for political grandstanding.
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