Financial Crime World

Latin America’s Financial Regulatory Framework in Sweden: A New Era for Sustainable Development?

A recent report published by the Boston University Global Development Policy Center and the International Network for Sustainable Financial Policy Insights, Research and Exchange (INSPIRE) has shed light on the urgent need for Latin America to revamp its financial regulatory framework in response to the COVID-19 pandemic and climate change.

The Critical Role of Financial Regulators

The report highlights the critical role of financial regulators in addressing systemic weaknesses and promoting sustainable development. The panelists emphasized the importance of incorporating climate risk elements into regional financial institutions’ work and exploring tools to internalize externalities in a post-COVID world.

Key Findings and Recommendations

Key Economic Specificities

  • Awareness of Externalities: Financial regulators must be aware of the consequences of externalities on all those interacting with them.
  • Existence of Externalities: Externalities exist in supply and payment chains, requiring financial regulation to internalize interdependencies in the financial system.

Tools for Internalizing Externalities

  • Environmental and Social Risk Management (ESRM): Compulsory ESRM instruments are essential to mitigate risks.
  • International Cooperation: Climate hazards impact the entire world, not just high-emission nations, and isolated measures may lead to carbon “leakages.”

Recommendations for Latin America’s Financial Regulatory Framework

  • Update the regulatory framework to ensure a long-term robust financial system and promote sustainable development.
  • Incorporate climate risk elements into regional financial institutions’ work.
  • Explore tools to internalize externalities in a post-COVID world.

Expert Insights

Daniel M. Schydlowsky

  • Latin America’s underlying challenges of socio-environmental conflicts, climate emergencies, and long-term climate change were exacerbated by the pandemic.
  • Financial regulators must adjust to the new circumstances and deal with COVID-19 and climate risks simultaneously.

Mariana Escobar Uribe

  • The current moment requires alignment between private and public interests.
  • Financial companies and supervision entities must have the correct tools and be aware that ESRM instruments are essential to mitigate risks.

Pascual O’Dogherty

  • International cooperation and coordination are crucial in addressing climate change.
  • Climate hazards impact the entire world, not just high-emission nations, and isolated measures may lead to carbon “leakages.”

Nick Robins

  • Macroprudential regulation can transition away from fossil fuels and integrate environmental and social risks in the prudential policy toolkit.

Conclusion

The report emphasizes that updating Latin America’s financial regulatory framework is critical to ensuring a long-term robust financial system and promoting sustainable development. By internalizing externalities and incorporating climate risk elements, regional financial institutions can play a crucial role in addressing systemic weaknesses and promoting sustainable development in response to the COVID-19 pandemic and climate change.