Report on Incentives to Centrally Clear OTC Derivatives Reflects WOCCU Concerns

The Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published their final report on Incentives to centrally clear over-the-counter (OTC) derivatives which includes provisions addressing issues raised by WOCCU in its comment letter

The report issued today notes that incentives available for larger firms were not always in place for other types of firms including credit unions and that this report c ould be used as a basis for possible fine-tuning some of the post-crisis regulatory reforms. 

The central clearing of standardised OTC derivatives is a pillar of the G20 Leaders' commitment to reform OTC derivatives markets in response to the global financial crisis and this report evaluates how these reforms interact and how they could affect incentives.

WOCCU will continue to monitor this report to ensure that access for credit unions and other community based-financial institutions are treated fairly and proportional.

A copy of the final report can be viewed here.

Financial Stability Board

Cyber Lexicon Includes WOCCU Recommended Changes

The Financial Stability Board (FSB) published a Cyber Lexicon intended to support the work of the FSB, standard-setting bodies, authorities and private sector participants to address financial sector cyber resilience. 

WOCCU recently supported the initiative to develop a Cyber Lexicon to address cyber security and cyber resilience in the financial sector, but made numerous suggestions, many of which were included in today’s issuance.  Of note was the WOCCU recommended approach taken by the FSB to focus the scope of the lexicon on core terms and exclude overly technical terms as well as general business and regulatory terms to avoid confusion among industries.

The lexicon as adopted can prove to be useful to support work in the following areas:

  • Cross-sector common understanding of relevant cyber security and cyber resilience terminology;
  • Work to assess and monitor financial stability risks of cyber risk scenarios;
  • Information sharing as appropriate; and
  • Work by the FSB and/or standard-setting bodies to provide guidance related to cyber security and cyber resilience, including identifying effective practices.

The lexicon will be delivered to the G20 Leaders’ Summit in Buenos Aires later this month and can be viewed here.

Financial Stability Board

WOCCU Urges Increased Proportionality in Inter-US/Canada Regulations

World Council urged both the United States and Canada to adopt proportional approaches to regulations and not adopt a “one-size-fits-all” approach that increases burdens for smaller financial institutions such as credit unions that often lead to higher costs, reduced services and reduced growth as part of the strategy to improve trade relationships that will benefit both Canada and the United States.

These comments came were made on a Request for Information from the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget’s (OMB) for the United States-Canada Regulatory Cooperation Council (RCC) on the respective country’s efforts to reduce unnecessary regulatory differences between the United States and Canada.

WOCCU noted that the member-owned not-for-profit structure of credit unions that returns their earnings directly to their members warranted sucha a proportional approach and would lead to better aligned regulatory systems, greater integrated economies, and improved trade relationships.

A copy of the letter can be viewed here.

FATF Issues Business Bulletin Noting Several AML/CFT Developments

The November edition of the FATF Business Bulletin provides a brief update on outcomes from the October 2018 FATF plenary meeting.

Of note are the following:

  • Amendments to the FATF Recommendations and Glossary to respond to the increasing use of virtual assets for Money Laundering and Terrorist Financing;
  • The start of a project that will consider the feasibility of expanding the FATF Recommendations applicable to proliferation financing;
  • Future work on Digital Identity to develop guidance for acceptability of digital ID focusing on the reliability and independence features of digital IDs;
  • Developing reports addressing how large internanational financial institutions identify suspicious activity and the other describing the practical considerations in setting up public-private partnerships.

The complete summary of outcomes from the Plenary is available here and the November Business Bulletin can be viewed here.


World Bank Issues Paper on Regulation of Financial Cooperatives including Credit Unions and Their Role in Financial Inclusion

The World Bank issued its paper “Financial Cooperatives Issues in Regulation, Supervision, and Institutional Strengthening”, highlighting the role if financial cooperatives, including credit unions, as significant drivers of financial inclusion.  The paper notes that the significance of financial cooperatives in terms of financial inclusion in the developing world cannot be underestimated.

Included in the paper is a focus on the main issues surrounding the regulation, supervision and strengthening of financial cooperatives building on examples from different countries as well as on the inputs received from the public.  

A copy of the paper can be downloaded here.

Regulatory and Supervisory Challenges with Financial Inclusion Discussed at FSI-GPFI Conference

The BIS’s Financial Stability Institute (FSI) and the G20s Global Partnership for Financial Inclusion (GPFI) convened a conference to discuss the implications of fintech for financial regulation and supervision and the work of the various standard setting bodies.

Participants explored specific examples of adapting regulatory, supervisory and safety net practices to take into account fintech developments; ways for financial sector authorities to leverage the same technologies driving fintech to support their own work; and the application of the concept of proportionality in the implementation and assessment of international standards.

The conference took place in the context of accelerating change in the financial services landscape in countries across the income spectrum, including expanding opportunities for financial inclusion, but also new challenges for country-level authorities and for standard setting bodies.  Further coverage of this event can be found here.

WOCCU has been active surrounding developments in regulation concerning fintech most recently urging the Global Financial Innovation Network (GFIN) to ensure a level regulatory playing field for credit unions as well as including the principles of proportionality in connection with GFIN’s proposal to create a regulatory “global sandbox” for fintechs.  A copy of this letter can be viewed here

Bank of International Settlements

Basel Committee Finalization of Stress Testing Principles Includes WOCCU Recommended Proportional Approach

The Basel Committee on Banking Supervision (Committee) issued its Stress Testing Principles including WOCCU recommended approach of implementation on a proportionate basis, depending on the size, complexity and risk profile of the institution for which the authority is responsible.  WOCCU members have often reported “gold-plating” and excess supervision involving stress testing.  The inclusion of the proportionality language, together with the WOCCU recommended direction to consider that the resources of the organizational structure are adequate given complexity of the exercises, should provide regulatory relief for credit unions from excessive supervisory requirements.

A copy of the Committee’s Stress Testing Principles can be viewed here.


WOCCU Urges Level Playing Field for Regulatory "Global Sandbox" for Fintechs

WOCCU urged the Global Financial Innovation Network (GFIN) to ensure a level regulatory playing field for credit unions as well as including the principles of proportionality in connection with GFIN’s proposal on creating a regulatory “global sandbox” for fintechs.    

GFIN is collaboration between 12 regulators and other related parties who are seeking to provide a more efficient way for innovative firms to interact with regulators, helping them navigate between countries as they look to scale new ideas.   Their proposal will also create a new framework for cooperation between financial services regulators on innovation-related topics.

World Council supports many aspects of the GFIN’s proposed mission statement but urges the Member Agencies of the GFIN also to include the principles of a level regulatory playing field and the principle of proportionality.  

World Council also recommended:

  • All participants in the financial sector, including fintechs and other non-traditional firms accepting deposits or similar repayable funds, should be subject to the same comprehensive and effective anti-money laundering/combating the financing of terrorism
  • Pilot programs to promote regulatory innovation should be conducted at the national or provincial level. The World Council does not support conducting cross-border trials;
  • GFIN make the protection of depositors from risk of loss a fundamental aim of the network, especially in jurisdictions where fintechs and other non-traditional firms accept deposits;
  • GFIN exercise caution in granting exemptions from existing regulations for so-called “new” activities that are really traditional banking activities delivered from a new channel;
  • GFIN member agencies should achieve a high level of coordination and cooperation with other global standard-setting bodies.

 A copy of the letter can be viewed here.


WOCCU Urges Flexibility by FSB for Legal Entity Identifier

WOCCU urged the Financial Stability Board to incentivize increased uptake of the Legal Entity Identifier rather than to mandate its usage.  This approach will limit unreasonable regulatory burdens on credit unions and other community-based financial institutions as the expense of such adoption outweighs the benefit of mandatory adoption.  WOCCU acknowledged the benefits of optional adoption that can result from the use of LEI in areas such as AML/CFT and other areas,but did not support mandatory adoption for smaller institutions.

These comments came as part of the FSB's Thematic peer review on implementation of the Leal Entity Identifier:  summary Terms of Reference.

A copy of WOCCU's letter can be viewed here.

Financial Stability Board

WOCCU Urges Continued Credit Union Access to Central Clearing of OTC Derivatives.

WOCCU made numerous recommendations that will allow credit unions to continue to have access to central clearing of over-the-counter derivatives.  In particular WOCCU urged a reduction in Basel III’s capital requirements for issuers and clearers of interest-rate swaps and caps to help better ensure continued access to interest rate derivatives for credit unions.  Without changes to these rules, the banks’ cost of capital for issuing or clearing interest rate derivatives may result in the banks dropping credit unions and other smaller derivatives users as clients.

The comments were filed in response to the Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructure (CPMI) and the International Organization of Securities Commissions’ (together “the Committees”) Consultative Document: Incentives to centreally clear over-the-counter (OTC) derivatives.

A copy of the letter can be viewed here.

Financial Stability Board

Basel Adopts WOCCU Recommended Approach in Pillar 3 Disclosure Requirements

WOCCU’s recommended approach of limiting application of the Total Loss-Absorbing Capacity (TLAC) requirements at resolution group level to internationally active banks or global systemically important banks (G-SIBs) was adopted by The Basel Committee on Banking Supervision (Committee) today in its technical amendment on additional Pillar 3 disclosures requirements.  These requirements are for those jurisdictions implementing an expected credit loss (ECL) accounting model as well as for those adopting transitional arrangements for the regulatory treatment of accounting treatment.   

WOCCU filed its comment letter earlier this year urging this approach noting that such an approach would be an appropriate proportional regulatory approach vis-à-vis reporting compliance burdens for credit unions. 

A copy of the Committee’s technical amendment on additional Pillar 3 disclosure requirements can be viewed here.


WOCCU Comments Included in IFAC’s Roadmap on Strengthening Accounting Standard Setting Process

WOCCU input is reflected in the International Federation of Accountants’ (IFAC) “Perspectives on the Way Forward for Strengthening the Oversight and Operations of the International Audit & Assurance and Ethics Standards Boards”, which provides a roadmap for developing high-quality international accountancy standards.

The Monitoring Group (MG) has been reviewing the international standard setting process since early 2015 and most recently published a consultation paper outlining possible actions. WOCCU provided input into this consultation urging inclusion of a “multi-stakeholder” approach to help the board develop standards that better serve the public interest and are relevant to all types of business enterprises including credit unions. 

The report is designed to set out perspectives on the way forward to strengthen the oversight and operations of the standards boards responsible for audit & assurance and ethics.  While this report does not include an agreed Public Interest Framework (PIF), it does provide a roadmap to advance consensus noting the following:

  • Broad support and agreement for a Public Interest Framework (PIF) is important to provide a firm foundation on which to base any significant changes to the model.
  • A multi-stakeholder approach to achieve consensus is essential; and
  • Improvements will need to be appropriately funded, but a new, viable, diverse funding model has not yet been proposed or agreed.

The report further notes that although the current process produces standards that are regarded as high quality and credible, improvements are needed in the following areas:

  • Clarifying the distinct roles between oversight and standards development;
  • Enhancing multi-stakeholder representation on both the oversight body and the standards boards;
  • Improving the timeliness of standards development while retaining their quality and relevance; focusing on standards related to auditor performance; quality management within firms; the implications of new accounting standards; and emerging areas of reporting and new technology;
  • Addressing the perception that the accountancy profession is able to exert undue influence; and
  • Increasing the funding sources to support the proposed improvements above, and to ensure sufficient, sustainable, and preferably diverse funding for the future

A copy of the report can be viewed here.

The Monitoring Group

WOCCU Urges Proportionality in FSB's Cyber Lexicon Initiative

The World Council of Credit Unions urged the Financial Stability Board (FSB) to take a proportional regulatory approach in its cybersecurity guidance so as to not impose an unreasonable compliance burden on community-based financial institutions, such as credit unions.  These comments came as part of World Council's comments on FSB's Consultative Document on Cyber Lexicon.

World Council supported FSB's initiative to develop a Cyber Lexicon and to address cyber security and cyber resilience in the financial sector as well as supporting the draft lexicon and the criteria used to develop it. 

A copy of the letter can be viewed here

Financial Stability Board

Basel Adopts WOCCU Recommended Amendment to Treatment of Net Stable Funding Ratio

The Basel Committee on Banking Supervision adopted a WOCCU recommended change to the treatment of extraordinary monetary policy operations in teh Net Stable Funding Ratio (NFSR).The amendment to the NSFR allows reduced required stable funding factors for central bank claims with a maturity of more than six monghts, subject to a floor of 5%.  The amendment will provide greater flexibility in the treatment of extraordinary central bank liquidity absorbing monetary policy operations. 

WOCCU urged the adoption of this amendment in its comment letter to the Basel Committe. 

A copy of the technical amendment can be viewed here, and WOCCU's comment letter can be viewed here

WOCCU Supports Simplified Alternative in Basel Committee Standard on Capital Requirements

World Council supports many aspects of the Basel Committee on Banking Supevision's (Committee)  proposal to establish a “Simplified Alternative” to Basel III’s standardised approach to market risk capital requirements, which would apply to less complex banking institutions.The proposal that would exclude asset-size or trading-book-size limitations that would otherwise restrict an institution's eligibility to use the Simplified Alternative should provide regulatory relief for most credit unions.

WOCCU filed its comment letter to the Committee's Consultative Document:  Revisions to the minimum capital requirements for market risk.

A copy of the letter filed by WOCCU can be viewed here.


WOCCU on Capitol Hill Urging Congress to Support Credit Union Development Efforts

The World Council of Credit Unions (WOCCU) was active on Capitol Hill today urging Congress to support credit union development efforts.  Michael Edwards, General Counsel and Andy Price, Regulatory Counsel for WOCCU were present at the Senate Foreign Relations Committee that heald a hearing entitled "USAID Resources and Redesigns" wherein The Honorable Mark Green, Administrator for the Unites States Agency for International Development testified on issues surrounding the deployment of funds by the agency.

The Credit Union National Association submitted a letter touting the success of WOCCU with past development projects and urging Congress to priortize procurement reforms that level the playing field for smaller development contractors such as credit unions.

A copy of the letter can be viewed here.


Proportionality Urged by WOCCU in Basel Pillar 3 Updated Framework

WOCCU urged the Basel Committee on Banking Supervision to emphasize that prudential regulators should consider proportionality when implementing Pillar 3 Disclosure Requirements in the Updated Framework so as to not subject less complex institutions with a lower risk profile to unnecessary disclosures.

These comments were made in WOCCU's recent comment letter on the Basel Committee's Consultative Document:  Pillar 3 Disclosure Requirements – Updated Framework WOCCU further supported finalization of the standard that limits the scope of most aspects this standard to “internationally active banks at the top consolidated levels”, which would in effect, exempt most credit unions from the most onerous aspects of the proposal.

A copy of the letter can be viewed here.


Basel Committee Finalizes Standards on Simple, Transparent and Comparable Short-Term Securitisations

The Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) finalized, in two separate issuances, both the Criteria for Identifying and the Capital Treatment for simple, transparent and comparable (STC) short-term securitisations.

WOCCU supported much of the proposal but urged various changes on both the Capital Treatment and the Criteria proposals designed to assist credit unions in the development of simple, transparent, and comparable short-term securitisations.

Key changes included in the final standard include reducing the minimum performance history for non-retail and retail exposures at five years and three years, respectively, and clarifying that the provision of credit and liquidity support to the asset-backed commercial paper structure can be performed by more than one entity, subject to certain conditions.  Finally, WOCCU recommended changes were made to clarify that the criteria do not automatically exclude equipment leases and auto loan and lease securitisations from the short-term STC framework.

The final proposal on the Capital Treatment can be viewed here and the final proposal on the Criteria can be viewed here.


WOCCU Urges Proportionality for Credit Unions in Basel Pillar 3 Disclosures

WOCCU urged the Basel Committee to adopt a proportional regulatory approach in its recent comment letter on the Basel Committee on Banking Supervision's Technical Amendment: Pillar 3 Disclosure Requirements – Regulatory Treatment of Accounting Provisions.

Specifically with  the accounting for the credit quality of assets, WOCCU urged limiting reporting burdens for non-complex, community-based financial institutions by not allowing country-level disclosures for the geographic breakdown required under the disclosure.  This would reduce the compliance burden on most credit unions.

Further, WOCCU urged omitting Total Loss-Absorbing Capacity (TLAC)-related measures from a credit union's Pillar 3 disclosures for a credit union that is not required to issue TLAC instruments.

A copy of the letter can be found here.


Proportionality in Stress Testing Urged by WOCCU to Basel Committee on Proposal

World Council urges the Basel Committee on Banking Supervision (Committee) to adopt the principle of proportionality in its proposal on stress testing principles in its comment letter.  The Committee recently opened for comment its Consultative Document: Stress Testing Principles wherein it is moving to a shorter, higher-level articulation of existing principles which will allow for a more robust development of stress testing practices. WOCCU members have often reported “gold-plating” and excess supervision involving stress testing.  Accordingly, World Council is urging the Committee to finalize this standard in a manner that ensures that supervisory practices required for stress testing are commensurate with the risk profile and systemic importance of the supervised entity and to ensure credit unions are not unduly burdened by unnecessary oversight.

A copy of the letter can be viewed here.


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