Financial Crime World

Financial Institution Risk Management in Switzerland: A Transformative Journey

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Swiss banks are preparing for a significant shift towards sustainable finance as regulatory and governmental initiatives globally strive to create a more sustainable economy. A recent survey by EY reveals that 85% of respondents believe sustainable finance will have a significant impact on the financial industry.

Key Findings from the Survey

  • 85% of respondents believe sustainable finance will significantly impact the financial industry.
  • The majority (67%) anticipate environmental topics, particularly climate change, to be the main driver of change for their business models.
  • Only 20% of participants cited regulation as the key driver for change.

Challenges and Opportunities

  • Integrating ESG considerations into risk management and reporting processes is a significant challenge for Swiss financial institutions.
  • Most respondents (67%) believe environmental topics, mostly climate-related, will drive changes to their business models.
  • Regulatory drivers, such as the EU Action Plan on Sustainable Finance and the Markets in Financial Instruments Directive (MiFID), are expected to influence the industry.

Risk Management Frameworks

  • The integration of ESG and climate risks into traditional risk categories is still limited, with only 35% having a dedicated risk policy for ESG and climate change risks.
  • Financial institutions need to develop end-to-end ESG risk management frameworks to reflect sustainability risks in their policies and processes.

Reporting and Disclosure

  • Swiss financial institutions are already reporting or planning to report on ESG using frameworks such as the Global Reporting Initiative (GRI) and Task Force on Climate-related Financial Disclosures (TCFD).
  • FINMA has based its disclosure rules on TCFD recommendations, which is expected to lead to a convergence of Swiss financial institutions aligning their disclosures to TCFD.

Conclusion

The Swiss financial industry is undergoing a transformative journey towards sustainable finance, driven by regulatory changes and client demand. While challenges remain, financial institutions are adapting to integrate ESG considerations into risk management and reporting processes, ensuring a more resilient and sustainable future for the industry.