The Financial Stability Oversight Council (FSOC) approved its 2021 annual report, which includes recommendations related to financial climate risk, cybersecurity, digital asserts, and LIBOR to promote U.S. financial stability in 2022 and beyond.
“The Financial Stability Oversight Council’s annual report analyzes past episodes of financial turmoil to understand weak points in our financial system. It also reviews the actions taken by the Council to strengthen our financial system, with one eye on the past and one on the future,” Secretary of the Treasury Janet Yellen said. “In the coming year, the Council will continue to monitor threats to financial stability and take concrete action where appropriate.”
Among its recommendations, FSOC cited the importance of taking action to reduce financial-related climate risk. The council recommends improving the availability of data and measurement tools, enhancing assessments of climate-related financial risks and vulnerabilities, and incorporating climate-related risks into risk management practices and supervisory expectations for regulated entities, where appropriate.
It also recommends that federal and state regulators continue to examine risks to the financial system posed by new and emerging uses of digital assets. It says member agencies should consider the recommendations in the Report on Stablecoins published by the President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.
On the LIBOR transition, FSOC says market participants should act with urgency to address their existing LIBOR exposures and transition to robust and sustainable alternative rates. Member agencies should determine whether regulatory relief is necessary to encourage market participants to address legacy LIBOR portfolios. Member agencies should also continue to use their supervisory authority to understand the status of regulated entities’ transition from LIBOR, including their legacy LIBOR exposure and plans to address that exposure.
Finally, on cybersecurity, the council recommends that federal and state agencies continue to monitor cybersecurity risks and conduct examinations of financial institutions and financial infrastructures to ensure, among other things, robust and comprehensive cybersecurity monitoring, especially in light of new risks posed by the pandemic, ransomware incidents, and supply chain attacks.