IADI Urged to Consider Credit Union Deposit Insurance Schemes in Setting Ratios

World Council of Credit Unions (World Council) filed its comment letter on the International Association of Deposit Insurers on the Association’s draft research paper Deposit Insurance Fund Target Ratios.  WOCCU included information on the National Credit Union Share Insurance Fund (NCUSIF) in the United States, the United Kingdoms’ Financial Services Compensation Scheme (FSCS), and Canadian provincial deposit insurance funds noting that including these successful approaches taken by the respective schemes, albeit different in their approaches, can help inform the IADI’s future work on deposit insurance fund target ratios.  

The letter notes that these funding structures strike an appropriate balance vis-à-vis the costs of levies versus pro- and counter-cyclality versus maintaining readily available funds to pay for insurance losses.

A copy of the letter can be viewed here.


WOCCU Applauds Efforts to Reduce De-Risking

The Basel Committee on Banking Supervision (Basel Committee), the Committee on Payments and Market Infrastructures (CPMI), the Financial Action Task Force (FATF) and the Financial Stability Board (FSB) announced their endorsement of the Wolfsberg Group’s publication of the Correspondent Banking Due Diligence Questionnaire to help address the decline in the number of correspondent banking relationships. The questionnaire aims to standardize the collection of information that correspondent banks ask from other banks when opening and maintaining these relationships which should alleviate the need for correspondent banks to “de-risk” otherwise viable financial institutions from their customer base.  This “de-risking” has been a source of concern for credit unions and can impact their ability to send and receive international payments or connect to various payment flows. 

WOCCU is pleased to see this development as it has long advocated for measures to reduce de-risking including supporting using the Wolfsberg Group Questionnaire (See letter to the Basel Committee from February 2017).  Additionally, WOCCU engaged with FATF (See July 2017 letter, April 2017 letter, and August 2016 letter) for measures to address the issue.  This endorsement is welcome news and should assist credit unions with their correspondent banking relationships.


WOCCU Urges Basel Committee to Consider Credit Union Difference for Treatment of Sovereign Exposures

WOCCU filed its comment letter on the Basel Committee on Banking Supervision’s (Committee) discussion paper The Regulatory treatment of sovereign exposures.  This discussion paper is derived from a report from by a high-level Task Force on Sovereign Exposures set up by the Committee to review the regulatory treatment of sovereign exposures and recommend potential policy options.

In its letter WOCCU urged the following:

  • The establishment of a 0% risk-weight for domestic-currency central government exposures, including for exposures to central-government public sector entities (PSEs) that meet the Committee’s “support criteria,” as a general policy matter,or alternatively, to continue to permit 0% risk-weightings for domestic sovereign exposures as a national discretion.  WOCCU notes that existing Basel III reserve requirements already adequately control for the risks of a domestic sovereign default in a proportional manner;
  • Opposition to the imposition of a marginal risk weight add-on approach for domestic sovereign exposures and urged the Committee to limit any marginal risk weight add-on rules to apply only to foreign sovereign exposures. Because credit unions and other community-based depository institutions are usually subject to portfolio shaping rules that limit their permissible investments to loans, deposits in other depository institutions, and debt instruments guaranteed by a domestic sovereign, additional risk weights are not warranted;
  • Opposition to requiring credit unions to stress test the creditworthiness of their exposures to domestic sovereigns;
  • Consideration of dividing sovereign exposures into three or more classes that are not reliant on credit ratings per se, such as: (a) domestic sovereign exposures (which present lower credit risks than foreign sovereign exposures); (b) “investment grade” foreign sovereign exposures; and (c) “non-investment grade” foreign sovereign exposures.

A copy of the letter can be viewed here.


WOCCU Urges EC to Support Credit Union Lending to SMEs

WOCCU filed its comment letter to the European Commission's (EC) Public consultation on EU funds in the area of investment, research & innovation, SMEs and single market. noting that credit unions can play a vital role in supporting the economy by providing sources of business credit to local communities and Small and Medium-sized Enterprises (SMEs).  The benefits to a local community from credit union lending can be significant such as through programs like the Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME).

WOCCU urged the consideration of credit union's role in this consultation which is analyzing various programs for consideration of forming the budget for the EU.

A copy of the letter can be found here.

European Commission

ENCU Urges EC to Provide Relief for Credit Unions in Regulatory Reporting

The European Network of Credit Unions submitted its comment letter to the European Commission in response to its Consultative Document:  Fitness Check on Supervisory Reporting.  In its letter ENCU urged the European Commission to reduce regulatory burden by considering the size, complexity, and structure of credit unions when simplifying and streamlining the supervisory reporting requirements.

In particular ENCU recommended that the EC consider the differing rulebooks under which credit unions operate noting that many times those regulations are significantly more stringent than those operating under CRD IV and CRR.  Further, given that credit unions are not-for-profit, member owned institutions run by volunteer boards and volunteer employees, that compliance burdens and costs often fall disproportionately on credit unions.

ENCU urged the EC to tailor any changes with an eye towards easing the compliance burden and reducing any costs associated with such changes.

A copy of the letter can be viewed here.

European Commission

Basel Committee Adopts Fintech Guidance that Includes WOCCU Input

The Basel Committee on Banking Supervision (Committee) published its paper titled Sound Practices on the implications of fintech developments for banks and bank supervisors which assesses how technology-driven innovation may affect the banking industry and banding prudential supervisors. 

The Committee’s final fintech paper reflects WOCCU’s comments on the Committee's August 2017 consultative document including that fintech companies be subject to comprehensive prudential, consumer protection, data security and anti-money laundering/countering the financing of terrorism (AML/CFT) regulation and urging the Committee to promote a regulatory level playing field by ensuring that fintech companies are subject to the same regulatory requirements that apply to authorized deposit-taking institutions such as banks, credit unions, and building societies

In particular the paper contains the following standards for fintech companies advocated by WOCCU:

  • Safety and soundness and financial stability can be enhanced by implementation of supervisory programmes to ensure that banks have effective governance structures and risk management processes that appropriately identify, manage and monitor risks arising from the use of fintech including associated new business models applications, processes or products; 
  • Safety and soundness and financial stability can be enhanced by implementation of supervisory programmes to ensure that banks have appropriate risk management practices and processes over any operation outsourced to or supported by a third party, including fintech firms, and that controls over outsourced services are maintained to the same standard as those applied to operations that the bank itself conducts; and 
  • Where appropriate, safety and soundness and financial stability can be enhanced by bank supervisors communicating and coordinating with relevant regulators and public authorities, such as those charged with data protection, consumer protection, fair competition and national security, to ensure that banks using innovative technologies are complying with the relevant laws and regulations.

WOCCU Actively Monitoring IASB Work Plan

The International Accounting Standards Board (IASB) issued their new work plan at the end of January containing a number of items relevant to credit unions this year.  A thorough summary of the January IASB meeting, containing numerous details can be found here.

Of particular interest to credit unions are the following:

  • IASB will finish the Conceptual Framework in March.  This is the primary accounting standard on defining equity versus liabilities, and could impact the ability of cooperatives to use shares as equity;
  • The IASB will issue a Discussion Paper in the Second Quarter of 2018 called Financial Instruments with Characteristics of Equity, which may also address when credit union shares and cooperative shares qualify as equity on an accounting basis (assuming this is not addressed in the Conceptual Framework); 
  • IASB is planning Discussion Papers or Exposure Drafts (similar to proposed rules) on requirements for primary financial statements—including, according to the IASB meeting summary, requiring companies to disclose their key management performance measures, as well as proposals on management commentary and disclosure requirements; and
  • IASB is also planning to issue a research summary paper on share-based payments, which indicates that they are considering changes to the rules on dividends.  This item may or may not affect credit unions based on the share-based dividends aspect.

WOCCU will closely monitor these items as they evolve throughout the year and will continue to ensure that the credit union/cooperative perspective is considered at each step of the process.

International Accounting Standards Board

WOCCU Urges Changes in Oversight of International Audit-Related Standard-Setting Boards

WOCCU filed its comment letter on the Monitoring Group’s proposal on Strengthening the Governance and Oversight of the International Audit-Related Standard-Setting Boards in the Public Interest

The Monitoring Group is a group of international financial institutions and regulatory bodies committed to advancing the public interest in areas related to international audit standard setting and audit quality. The members of the Monitoring Group are the Basel Committee on Banking Supervision, European Commission, Financial Stability Board, International Association of Insurance Supervisors, International Forum of Independent Audit Regulators, International Organization of Securities Commissions, and the World Bank.

WOCCU makes numerous suggestions for changes to the proposal as follows:

  • Supports increasing the independence of auditing standard setting from the accounting profession, but does not support issuing new auditing standards more frequently;
  • Urges the Monitoring Group to require standard setters to utilize quantitative cost benefit analyses as part of their consultative processes, and also to considering seriously the comments of community-based cooperative depository institutions, to help reduce regulatory burdens on financial cooperatives;
  • Supports the proposal for a “multi-stakeholder” international audit standard setting board that includes board members who are not accountants per se but have relevant industry experience, such as being a representative of a community-based depository institution trade association or a community-based depository institution prudential regulator;
  • Opposes the proposal that international standards be adopted through majority vote; 
  • Proposes reforming the auditing standard Consultative Advisory Group (CAG) by including a broader multi-stakeholder composition in the Consultative Advisory Group that would better serve the public interest by helping to develop standards that are more relevant and practical for a wider diversity of business enterprises, including cooperative depository institutions; 
  • Supports giving the PIOB authority to veto auditing standards or challenge technical judgments when doing so is necessary for the PIOB to discharge its responsibility to ensure that auditing standards are in the public interest; and 
  • Supports retention of the Monitoring Group’s current oversight role over how international audit-related standards are developed. 

 A copy of the letter can be viewed here.

The Monitoring Group

WOCCU Supports Basel Committee Flexibility in Treatment of Liquidity-absorbing Monetary Policy Operations in the NSFR

WOCCU filed its comment letter on the Basel Committee’s technical amendment related to the treatment of extraordinary monetary policy operations in the Net Stable Funding Ratio.

In its letter, WOCCU voiced its support for the following:

  1. Reducing depository institutions’ Required Stable Funding (RSF) liquidity reserves to as low as a five percent RSF reserve factor for institutions’ claims on a central bank related to the central bank’s extraordinary “liquidity-absorbing operations,” including secured transactions with a residual maturity of more than six months.
  2. Providing depository institutions supervisors and central banks with increased flexibility vis-à-vis exceptional central bank operations to help promote financial stability, whether those exceptional central bank operations are to provide emergency liquidity or are to absorb excess liquidity in the banking system; and
  3. Providing a reduced RSF reserve factor for instruments used as collateral in connection with exceptional central bank liquidity operations.

A copy of the comment letter can be viewed here.


WOCCU Urges FSB to Consider Cooperative Structure on Proposals on Resolution Regimes

The World Council of Credit Unions filed two comment letters with the Financial Stability Board (FSB) on their two Consultation Documents on Key Attributes of Effective Resolution Regimes:  1. Principles on Bail-in Execution; and 2. Funding Strategy Elements of an Implementable Resolution Plan

FSB Bail-In Principles Proposal:

On the FSB Principles on Bail-in Execution WOCCU:

  1. Urges the FSB to limit these requirements to systemically important banks only;
  2. Argues that the FSB should respect the cooperative structure and not require a change in the coop’s ownership and control even in the event of a “bail-in”;
  3. Urges the FSB allow supervisors and institutions the option to engage more than one valuation firm to value its assets;
  4. Argues the FSB should not require community-based depository institutions to invest in computer programs that provide “highly granular” information about their assets and liabilities; and
  5. Cautions that public communications by supervisors concerning troubled financial cooperatives should be carefully crafted so as not to cause a run on that institution or on other financial cooperatives, especially since credit unions and other financial cooperatives are privately held by their member-depositors (so it is not necessary to issue communications to a broader “market” as would likely be necessary for a publicly traded systemically important bank).

FSB Resolution Funding Strategies Proposal: 

WOCCU urged the FSB to apply the proposed funding strategy only to systemically important banks.  Further WOCCU discusses information sharing between institutions and supervisors and provides examples of how cooperative depository institutions systems have handled past resolutions, such as the US “corporate credit unions crisis” of 2009, without demutualizing, such as by using private stabilization funds or temporary public-sector stabilization funds.

A copy of the Bail-In Principles Comment Letter can be viewed here and the Resolution Funding Strategies Proposal Comment Letter can be viewed here.

Financial Stability Board

WOCCU's Top 10 Advocacy Successes of 2017

WOCCU, on behalf of its members, is pleased to share its Top 10 Advocacy Successes of 2017.  Among the numerous successes are the following:  1. Reduced Capital Requirements for Most Mortgages; 2. Capital Add-Back for Expected Credit Loss Accounting Reserves; 3. Ending Correspondent Bank "De-Risking" with Clearer Anti-Money Laundering Rules; and 4. Reduced Operational Risk Reserves for community-Based Depository Institutions.

The full list of the Top 10 Advocacy Successes of 2017 can be viewed here.

Agreement Reached to Strengthen EU Rules on Money Laundering and Terrorist Financing

The European Union (EU) Ambassadors have confirmed a political agreement between the presidency and the European Parliament to amend the EU rules to prevent money laundering and terrorist financing. This is part of the trilogue process and will now move to the Parliament and Council for adoption.

The draft directive is intended to prevent the use of the financial system for the funding of criminal activities, and to strengthen transparency rules to prevent the large-scale concealment of funds

The main changes to directive 2015/849 include the following:

  1. Enhanced access to beneficial ownership registers, so as to improve transparency in the ownership of companies and trusts. The registers will be interconnected to facilitate cooperation between member states with public access to beneficial ownership information on companies; access to beneficial ownership information on trusts and similar arrangements based on a “legitimate interest”; access upon written request to beneficial ownership information on trusts that own a company that is not incorporated in the EU. Member states can provide for greater access.
  2. The threshold for identifying the holders of prepaid cards is lowered from €250 to €150, and customer verification requirements are extended. Virtual currency exchange platforms and custodian wallet providers will have to apply customer due diligence controls, ending the anonymity associated with such exchanges;
  3. Improved cooperation between the member states' financial intelligence units. FIUs will have access to information in centralised bank and payment account registers, enabling them to identify account holders;
  4. Improved checks on risky third countries. The Commission has established and regularly updates a harmonised list of non-EU countries with deficiencies in their anti-money laundering prevention regimes. Additional due diligence measures will be required for financial flows from these countries. The list builds on that established at international level by the Financial Action Task Force.

WOCCU has been active in shaping these regulations to ensure that the credit union perspective is adequately considered.  Namely, the following comment letters were filed during the process that served as a precursor to these amendments to the directive:

A copy of the press release, together with supporting documents, can be viewed here.

Basel III Slashes Capital Requirements for Most Mortgages, Operational Risk

The Basel Committee on Banking Supervision on December 7th issued the final version of Basel III with significant regulatory capital reductions for community-based financial cooperatives in the areas of residential mortgage lending and operational risk.  The final version of Basel III also preserves favorable treatment for non-mortgage loans to consumers and small businesses, but increases large banks’ capital requirements.  

“Credit unions, mutual banks and building societies around the world should save billions of dollars under these new Basel III reserve requirements, which respond to years of lobbying by World Council of Credit Union’s (WOCCU) for regulatory relief,” said WOCCU Vice President and General Counsel Michael Edwards.  ”The Basel Committee has also responded to our advocacy by making large banks subject to minimum capital requirements that are more in-line with the Basel capital rules applicable to community-based institutions, which will help level the regulatory playing field.”

WOCCU’s detailed summary of the final version of Basel III is available here.  The key points of the final Basel III standard for community-based financial cooperatives include:

  • The 75 percent of face value “regulatory retail” risk-weight for most non-mortgage loans to consumers and small businesses is preserved.  This category includes credit cards and other unsecured loans to consumers, consumer auto loans and leases, and business loans to small and medium-enterprises;
  • Operational risk reserves for virtually all community-based financial cooperatives will be reduced by roughly 20 percent compared to Basel II.  Larger institutions’ operational risk reserves will typically be higher than under Basel II;
  • Residential mortgage-loan risk weights are reduced by between 5 and 15 percentage points—translating to a capital reduction of between roughly 14 percent and 43 percent per loan—for residential mortgages with at least 20 percent equity or which have mortgage insurance or a guarantee.  These final risk weights are significantly lower than Basel II’s requirements as well as lower than the Committee’s proposal, which would have only reduced mortgage capital requirements for mortgages with at least 40 percent equity;
  • For mortgage insurance or guarantees, the risk weighting for the guaranteed amount can be as low as 0 percent if the guarantor is a government-sponsored enterprise, or as low as 20 percent in the case of private mortgage insurance;
  • Mortgages for second homes or investment properties are treated as owner-occupied residential mortgages for regulatory purposes unless more than 50 percent of the funds needed to pay the mortgage come from rental income;
  • For second-home or investment-property mortgages that are materially dependent on rental income, the final risk weightings are usually 30 to 45 percent of face value so long as the loan has at least 20 percent equity.  This is a significant concession from the Basel Committee’s proposed 70 to 120 percent risk-weight for most second-home or investment-property mortgages;
  • Large banks will be subject to a new “capital floor” that will not allow them to reduce their capital requirement to less than 72.5 percent of what their capital requirements would be under the Basel III standardized approach.  Basel II had no capital floor and World Council advocated strongly for the Committee to establish one for big banks;
  • Global Systemically Important Banks will have a higher leverage ratio requirement than other institutions; and

 The compliance dates for the revised standardized approaches to credit risk and operational risk are delayed from January 2019 to January 2022.


Agreement Reached on the Finalisation of the Basel III Framework

The Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision, announced that agreement has been reached on the finalisation of Basel III. The agreement improves the comparability of banks’ risk-weighted assets and reinforces the credibility of the bank capital framework. Agreement on these final elements means that key reforms pursued to address the causes of the global financial crisis has now been completed and can be fully implemented.

The reforms include the following elements: 

  • an aggregate output floor, which will ensure that banks' risk-weighted assets (RWAs) generated by internal models are no lower than 72.5% of RWAs as calculated by the Basel III framework's standardised approaches. Banks will also be required to disclose their RWAs based on these standardised approaches. (Advocated for by WOCCU which should help level the competitive playing field for credit unions and other community-based financial cooperatives          
  • a revised standardised approach for credit risk, which will improve the robustness and risk sensitivity of the existing approach;
  • revisions to the internal ratings-based approach for credit risk, where the use of the most advanced internally modelled approaches for low-default portfolios will be limited;
  • revisions to the credit valuation adjustment (CVA) framework, including the removal of the internally modelled approach and the introduction of a revised standardised approach;
  • a revised standardised approach for operational risk, which will replace the existing standardised approaches and the advanced measurement approaches;
  • revisions to the measurement of the leverage ratio and a leverage ratio buffer for global systemically important banks (G-SIBs), which will take the form of a Tier 1 capital buffer set at 50% of a G-SIB's risk-weighted capital buffer; and

A summary of the agreed reforms can be found in the summary document and the final text can be viewed here.  The revised standards will take effect from January 1, 2022 and will be phased in over five years. 

Bank of International Settlements

Council of the European Union Adopts Creditor Hierarchy, IFRS 9/Large Exposures Rules

The Council of the European Union, as the final result of the trilogue process adopted two legislative acts on banking:

  1. a directive on the ranking of unsecured debt instruments in insolvency proceedings (bank creditor hierarchy); and
  2. a regulation on transitional arrangements to phase in the regulatory capital impact of the IFRS 9 international accounting standard.

The general points of the directive on the ranking of unsecured debt instruments are as follows:

  • It creates a new class of subordinated debt in banks' insolvency hierarchy which would be eligible to meet the internationally agreed TLAC standard for global banks
  • It provides a rapid transposition in to national legal systems, by January 1, 2019 at the latest
  • Contains grandfathering provisions to allow existing national systems and already issued debt instruments still to be valid where they fulfil the conditions

With respect to the phase-in of IFRS 9, its new impairment model may lead to an increase in expected credit loss provisioning and consequential fall in capital ratios.  The original proposal contained a 3-year transitional period, however, at the urging of WOCCU, the impact was mitigated to a 5-year transitional period.  In addition, transitional arrangements will ease the effects of an abrupt end to the exemption currently enjoyed by large exposures.

Council of the European Union

Financial Stability Board Seeks Input on G-SIB Resolution Planning

The Financial Stability Board (FSB) issued for consultation two proposals for guidance on the implementation of its Key Attributes of Effective Resolution Regimes for global systemically important banks (G-SIBs), designed to address the “too-big-to-fail” institutions.

First is the consultation on Principles on Bail-in Execution referring to the write-down and/or conversion of liabilities into equity and helps implement a creditor-financed recapitalization as part of an orderly resolution that minimizes impacts on financial stability, ensures the continuity of critical functions, and avoids exposing taxpayers to loss.

The document proposes a set of principles covering:

  • disclosures on the instruments and liabilities within the scope of bail-in;

  • valuations to inform and support the application of bail-in;

  • processes to suspend or cancel the listing of securities, to notify creditors, and to deliver new securities or tradeable certificates following the entry into resolution;

  • securities law and securities exchange requirements during the bail-in;

  • processes for transferring governance and control rights and establishing a new board for the firm in resolution; and

  • market and creditor communications.

Second, the Consultation on Funding Strategy Elements of an Implementable Resolution Plan proposing guidance on the development of a plan for funding in resolution that builds on the FSB’s August 2016 Guiding Principles on the temporary funding needed to support the orderly resolution of a global systemically important bank (G-SIB) and existing supervisory and resolution guidance on liquidity risk management and resolution planning.

It identifies a set of key funding strategy elements covering:  1.  funding strategy capability; 2. a resolution funding plan by the authorities; 3. the use of firm assets and private sources of funding; 4. access to temporary public sector backstop funding mechanisms; and 5. information sharing and coordination between authorities. 

Comments are due to the FSB by February 2, 2018.

Financial Stability Board

Monitoring Group Seeks Input on Reforms to Global Audit Standard Setting

The Monitoring Group, consisting of public authorities responsible for monitoring the international audit standard-setting process (the International Organization of Securities Commissions (IOSCO), the Basel Committee on Banking Supervision (BCBS), the European Commission (EC), the Financial Stability Board (FSB), the International Association of Insurance Supervisors (IAIS), and the World Bank Group (WBG)), has issued a consultation paper setting out options to enhance the independence, relevance and transparency of international audit standard setting in the public interest.

The consultation paper focuses on the governance and structure of the Standard Setting Boards (SSB) that support auditing as a public interest activity, namely the International Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants. The proposal is far-reaching, setting out the main areas of concern regarding the current structure and considering, among other matters, the number, remit and size of the SSBs and their staffs; the accountability of the SSBs to International Federation of Accountants (IFAC); the process for nominating members to the SSBs; the roles of the Public Interest Oversight Board and the Monitoring Group; and the means by which the structure is funded.

Comments on the Consultation are due February 9, 2018 and can be viewed here.

Bank of International Settlements, The Monitoring Group

WOCCU Urges Changes to IADI Research on Resolution Tools

The World Council of Credit Unions (WOCCU) filed its comment letter with the International Association of Deposit Insurers on the Association’s draft research paper on Resolution Issues for Financial Cooperative: Overview of Distinctive Features and Current Resolution Tools urging numerous changes to the hierarchy of tools available for resolution of a troubled credit union.  

Michael Edwards, VP and General Counsel of WOCCU states that, "[m]aintaining the availability of cooperative financial services to ordinary physical persons and small and medium enterprises (SMEs) is important for promoting financial inclusion in all types of communities, especially rural districts and poor urban areas that are underserved by commercial banks because of a perceived lack of profitability".

As such, WOCCU urged the following changes to the draft research paper: 

  1. Demutualization should be a last resort for resolving financial cooperatives, i.e. used only when a business combination with another financial coop is not possible;
  2. Mergers or Purchase and Assumption transactions with another financial coop should be the preferred resolution method;
  3. The Association’s paper should be updated to include recent Basel Committee, Canadian OSFI, and EU capital rules for financial coops which have increased financial coops ability to recapitalize; and
  4. Supervisory tools available before the point of non-viability, such as Net Worth Restoration Plans, should be emphasized.
A copy of the letter can be viewed here.

Basel Committee Secretary General Indicates Willingness to Fine-Tune Basel Rules to Reduce Reg Burden

Basel Committee Secretary General William Coen indicated in recent public remarks that the Basel Committee is willing to fine-tune its international standards to reduce unintended regulatory burdens. Mr. Coen's remarks were made at the 2017 Institute of International Finance's Annual Membership Meeting in Washington, DC.

Secretary Coen confirmed that “there is likely to be a period during which no further major policy initiatives will be undertaken” by the Basel Committee once the Committee finalizes the rest of their Basel III-related rulemakings: (a) Revisions to the Standardised Approach for credit risk; (b) Standardised Measurement Approach for operational risk; (c) Reducing variation in credit risk-weighted assets – constraints on the use of internal model approaches; and (d) Revisions to the Basel III leverage ratio framework.

Toward the end of the remarks Secretary Coen implies that since the Basel Committee is not certain exactly certain how the new Basel III standards will work in practice (since phase-in is technically in January 2018 for most Basel III rule), the Committee will be open to fin-tuning the standards if they turn out to have unintended consequences.

Also included are comments from Svein Anderson, Secretary General of the Financial Stability Board on a ongoing research project on the effects of reform that, once finalized, "will be an evidence-based starting point for discussing potential deregulatory changes especially with respect to lending to small and medium enterprises (SMEs) and long-term financing." 

The entire update can be viewed here. WOCCU will continue to monitor and engage on these and other issues as they progress.  

Bank of International Settlements, Basel

Financial Inclusion and Information Sharing among Topics at FATF Meeting

The Financial Action Task Force (FATF) and the Financial Action Task Force of Latin America (GAFILAT) are concluding the first Plenary meeting under the Argentinean FATF Presidency (Nov. 1-3) in Buenos Aires, Argentina. The FATF is the international standard setting body for anti-money laundering/countering the financing of terrorism (AML/CFT) rules.  The purpose of the FATF Plenary meeting is to discuss proposed and final standards for international AML/CFT rules.

Those topics pertinent to credit unions being discussed are as follows:

  • Counter terrorist financing: Discussions on a project that identifies how terrorist organizations fund the recruitment of new members, including reviewing progress in the implementation of the FATF operational plan to tackle all sources, techniques and channels of terrorist financing, including updating the knowledge base on ISIL/Da’ech’ financing strategy;
  • Financial inclusion: Reviewing the results of a project aimed at encouraging countries to implement the FATF Recommendations that will allow financially excluded access to the regulated financial sector, while at the same time maintaining effective safeguards against money laundering and terrorist financing. A proposed supplement to the FATF 2013 guidance on financial inclusion will identify customer due diligence models that are compatible with the goal of making financial services accessible and available to all; and
  • Information sharing: Discussions on the draft guidance for private sector information sharing, which will cover information-sharing at group wide level and between financial institutions not belonging to the same group. Better private sector information sharing will improve transparency and access to beneficial ownership and contribute to detecting financial flows in support of terrorism.
WOCCU engaged the FATF regarding information sharing and financial inclusion AML/CFT issues at a FATF Private Sector Participation Group meeting in March of this year at the UN Office on Drugs and Crime in Vienna, Austria, and also filed written comments with the FATF on these issues in April and July.  We urged the FATF to reduce regulatory burdens on credit unions by clarifying how and when different financial institutions can share information about electronic payments transactions, such as to resolve AML/CFT red flags.  We expect the FATF to issue new guidance on AML/CFT information sharing in the near future.

WOCCU’s recent comments to the FATF include:: 

  • July, 2017, Comments on the FATF Draft Information Sharing Guidance Paper.  View the comment letter here.
  • April, 2017 on Information Sharing, Correspondent Banking and Financial Inclusion-related Customer Due Diligence:  View the comment letter here.
  • March, 2017 at the FATF meeting in Vienna hosted by the UN Office on Drugs and Crime. See the press release here.

WOCCU Urges Level Playing Field for Basel Committee FinTech Regs

The World Council of Credit Unions (WOCCU) urged a level playing field where fintech firms are subject to the same regulatory requirements as credit unions in WOCCU's comments to the Basel Committee on Banking Supervision in response to their Consultative Document – Sound Practices: Implications of fintech developments for banks and bank supervisors.  

WOCCU supported the Committee’s proposal that Financial Technology (‘fintech”) companies be subject to comprehensive prudential, consumer protection, data security and anti-money laundering/countering the financing of terrorism (AML/CFT) regulation.  Fintech companies are technology companies that typically do not have a depository institution charter but offer financial services within the “business of banking.”  WOCCU urged the Committee to promote a regulatory level playing field by ensuring that fintech companies are subject to the same regulatory requirements that apply to authorized deposit-taking institutions such as banks, credit unions, and building societies.

A copy of the letter can be viewed here.


ENCU Urges European Commission to Consider the Credit Union Difference in Cross-Border Transactions

The European Network of Credit Unions (ENCU) filed its comment letter on the European Commission's Consultative Document on Transparency and Fees in Cross-Border Transactions in the EU.  In its comments ENCU urged the EC to consider the disproportionate impact that the proposed regulations may have on smaller credit unions, noting that it may result in certain under-served markets being alienated.  Further it noted that credit unions, being member owned, not-for profit organizations will always seek the most efficient pricing for their members.

A copy of the letter can be viewed here.


European Commission

OECD Gives Update on Common Reporting Standard

The Organisation for Economic Co-operation and Development (OECD) provided an update on the implementation of the Common Reporting Standard (CRS) during its recent "Tax Talks" forum.  The forum is designed to provide updates on important recent and upcoming developments in the OECD's international tax work.

The CRS, was developed in response to the G20 request and approved by the OECD Council and calls on jurisdictions to obtain information from their financial institutions, such as the account balances of non-citizens who are not residents of the jurisdiction, and automatically exchange that information with other jurisdictions on an annual basis, mainly for the purpose of limiting the opportunities for taxpayers to circumvent reporting.

During the forum, OECD reported that 49 jurisdictions commenced their reporting on September 30, 2017, and another 53 jurisdictions are slated to commence reporting in September of 2018.  The United Kingdom and the EU states commenced in 2017, with Canada and Australia scheduled for 2018.  The United States has not chosen to participate in the CRS.  A complete list of the signatories, together with their respective implementation date can be found here


FSB Issues Report on Financial Sector Cybersecurity Regulations

The Financial Stability Board (FSB) issued its conclusions from a stocktake on cybersecurity regulations, guidance and supervisory practices which was delivered to the October 2017 Finance Minsters and Central Bank Governors in Washington, DC.

Notable findings of the FSB stocktake include the following:

  • All FSB member jurisdictions report drawing upon a small body of previously developed national or international guidance or standards when developing their own regulatory or supervisory schemes for the financial sector;

  • Some elements commonly covered by regulatory schemes targeted to cybersecurity include risk assessment, regulatory reporting, role of the board, third-party interconnections, system access controls, incident recovery, testing and training.

  • Jurisdictions remain active in further developing their regulation and guidance. Seventy-two per cent of jurisdictions report plans to issue new regulations, guidance or supervisory practices that address cybersecurity for the financial sector within the next year.

  • International bodies also have been active in addressing cybersecurity for the financial sector.

Private sector participants in the stocktake expressed support for principles-based, risk-based and proportional regulation, and also stressed the importance of a globally consistent approach that avoids multiple, potentially conflicting regulatory schemes.

The  summary report together with the detailed analysis can be viewed here.

Financial Stability Board

ENCU Comments on EC Development of Secondary Markets for Non-Performing Loans

The European Network of Credit Unions (ENCU) filed its comments with the European Commission on the Consultation on Development of Secondary Markets for Non-Performing Loans and Distressed Assets and Protection of Secured Creditors from Borrowers' Default.

In its letter ENCU stated that national-level legal frameworks for loan secondary markets strike the appropriate balance for the Member State and opposed EU-level intervention.  Further, that such intervention could unduly disadvantage credit unions who are often second-lien creditors.

Regarding new out-of-court “accelerated loan security” mechanisms, ENCU supported carving out consumer loans from this approach but also urged the Commission not to make loans to small businesses subject to this regime.  ENCU argued that small-business owners are typically physical person consumers who are self-employed and have usually either borrowed as a physical person (such as in the case of a sole trader) or have personally guaranteed loans to their small business if they have incorporated the small business as a legal entity, meaning that social equity grounds militating against applying an accelerated loan security instrument to consumer loans also apply to loans made to small businesses.

A copy of the letter can be viewed here.

European Commission