Criteria to be considered as a finical institution

Hello, I am trying get a clarification on whether my client need to use the financial institution SDA guidance or not. They are an Investment bank focussed in providing advisory services which includes ,debt and equity underwriting, Brokerage-securities etc.

However, they do buy corporate bonds & stocks ,to hold them as inventory to fulfil client orders in the market making business. However, they do not hold these for a long period (usually for about 30 days).

So should they be following the SDA guidance for financial institutions or should they be using the standard route?

Please advise.

Hi Amal - thanks for your question and welcome to the forum!

In general, the SBTi defines Financial Institutions using the linked criteria here: Financial institutions - Science Based Targets and you should work off of the finance sector guidance in line with the information provided by Howard below.

In terms of short versus long term lending, please refer to table 5.2(pg. 56) of the Financial Sector Science Based Targets Guidance. If you’re asking about Corporate Lending in the form of short term debt(>1 year), FIs may currently use SDA, Portfolio Coverage, or Temperature Rating approaches to report on this optional category.

Hi Amal,

Advisory services are currently out of scope under the SBTi near-term target framework for FIs. However, the SBTi is planning to develop target-setting methods for debt and equity underwriting, at which time your client could then set a SBT on this and potentially other facilitating services. Otherwise, your client could use one of the three methods from the FI Guidance that Hunter mentioned on these corporate bond and stock investments instead of treating them as a part of brokerage services.