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WOCCU Urges Changes to Proposed Rules for Simple, Transparent and Comparable Short-term Securitizations

The World Council of Credit Unions filed two comment letters urging changes to benefit credit unions on the Basel Committee on Banking Supervision (Committee) Consultative Documents on the Criteria and Capital treatment for simple, transparent and comparable  short-term securtisations.

WOCCU supports the Committee's efforts to revise the securitization framework to assis the financial industry in the development of simple, transparent and comprable (STC) term securitzation structures for short'term securitization such as asset-backed commercial paper.  The rules could provide a framework fora  more stable funding source for issuers and make it a safer and more attractive investment.

However, WOCCU urged several adjustments to the proposal to make the market friendlier to credit unions as follows:

  • Allow asset-backed commercial paper to be sponsored and backstopped by a consortium of smaller financial institutions;
  • Permit loans made to borrowers with low credit scores or who have a history of bankruptcy to be included in asset backed commercial paper collateral pools;
  • Provide further clarification and guidance on establishing the "homogeneity" requirement for STC asset-backed commercial paper;
  • Provide flexibility in establishing asset performance history by reducing hter minimum track record period for retail and non-retail exposures (no more than two years as opposed to the proposed five years); and
  • Provide flexibility and clarity on meeting experience requirements.
A copy of the letters can be viewed here for the Criteria, and here for the Capital Treatment.
 
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Basel

CPMI Issues Strategy On Security of Wholesale Payments

The Committee on Payments and Market Infrastructures (CPMI), issued its strategy document to improve the security of wholesale payments that involve banks, financial market infrastructures and other financial institutions. There is a sense of urgency by CPMI to move quickly to improve the infrastructure given the rapidly increasing threats of wholesale payments fraud.  

This urgency is clearly evidenced by the recent headlines of a Bangladesh bank official whose computer was hacked to carry out a $81 million heist.

The CPMI is now seeking input from stakeholders. as it plans to develop guidance to help operators and participants of payment systems and messaging networks as well as their respective supervisors, regulators and overseers improve security. The proposed guidance will be developed by early 2018. 

Comments on the proposed strategy should be submitted by November 28, 2017.

 

WOCCU Urges Revisions to Basel Simplified Alternative to Market Risk Capital Proposal

WOCCU urged several revisions to the Basel Committee on Banking Supervision’s consultative document Simplified alternative to the standardised approach to market risk capital requirements.

This the first Basel Committee standard to be proposed as expressly applicable to non-internationally active institutions like credit unions in the United States.   The Committee is proposing a less complex way for depository institutions to reserve for market risks like interest rate risk for available-for-sale bonds and loans.  It is expected that more Basel Committee proposals will focus more on non-internationally institutions like credit unions going forward even though they previously focused on internationally active banks.

The Simplified Alternative to market risk, if structured properly, can reduce regulatory burdens in a proportional manner and facilitate adoption of Basel standards by community-based cooperative financial institutions including credit unions. WOCCU's suggested the following improvements to the proposal as follows: 

  • Allowing non-complex depository institutions up to EUR 10 billion (from a proposed EUR 1 billion) in assets and with trading books up to 10 percent of risk-weighted assets (instead of 5 percent) to utilize the Simplified Alternative;
  • Harmonizing the Simplified Alternative’s risk weights for general interest rate risk, equity risk and commodities risk with those of the standardised approach to market risk;
  • Treating well-capitalized financial institutions without a credit rating as “investment grade” for purpose of counterparty risk;
  • Revising the proposal’s dichotomy between “advanced economies” and “emerging markets” to include the Republic of Korea and the all European Union Member States as “advanced economies;” and
  • Clarifying that the Simplified Alternative market risk standard applies only to the institution’s available-for-sale bonds and loans.
A copy of the comment letter can be viewed here.

Basel Committee Issues FAQs on Basel III definition of Capital

The Basel Committee on Banking Supervision issued Frequently Asked Questions (FAQs) on the Basel III definition of Capital.  Several of the items may be beneficial for credit unions, notably the following:

  • Q. 5 - stating that paid-in capital should preferably be paid-in using cash, which helps support including credit unions and other cooperative shares as regulatory capital;
  • Q. 6 - allowing for dividends to be paid out of reserves (provided all minimum capital ratios are met); 
  • Q. 16 - revising the guidance on the permitted trigger levels and write-down mechanisms for Additional Tier 1 capital instruments accounted for as liabilities through principal loss absorption through a conversion or write-down; and
  • Q. 19 - stating that subordinated debt can qualify as Additional Tier 1 or Tier 2 capital.

The FAQs can be viewed here.

Global Regulatory Update Now Available

The latest edition of WOCCU's Global Regulatory Update is now available containing updates on regulatory developments from across the globe.  This edition contains updates from Australia, Brazil, Canada, Great Britain, Ireland, Macedonia, Netherlands, New Zealand, Poland and the United States. To read the newest edition click on the link here.

Common Reporting Standards Commencing This Month

The Organisation for Economic Co-operation and Development (OECD) recently announced the commencement of bilateral exchange of financial account information under the Common Reporting Standard (CRS) as well as another series of bilateral exchange relationships established under the the CRS. This brings the number of bilateral relationships for the automatic exchange of financial account balances of non-resident, non-citizens held across the globe to over 2000.

At present, 102 jurisdictions have publicly committed to implement the CRS, with 49 being committed to start exchanges this month and a further 53 slated to take up exchanges in September 2018.

With first exchanges for jurisdictions committed to a 2017 timeline now being only weeks away, all 49 have now activated their exchange relationships under the CRS Multilateral Competent Aurhority Agreement (CRS MCAA) and the network of bilateral exchange relationships now covers over 99% of the total number of possible exchange relationships.

The OECD’s Common Reporting Standard is modeled on the United States’ Foreign Account Tax Compliance Act (FATCA) and is intended to help combat tax-evasion by individuals who are using “offshore” financial accounts, i.e. accounts located in jurisdictions where they do not reside, to hide investment income from their home countries’ tax authorities.  Credit unions subject to the Common Reporting Standard will be required to make annual reports to their jurisdiction’s tax authority about accounts held by members who are not local residents, including those accounts’ balances.

A copy of the OECD press release can be viewed here.

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OECD

EU Data Protection Compliance Guide Now Available

World Council is pleased to make available our new Compliance Guide for the EU General Data Protection Regulation/EU-US Privacy Shield to World Council’s member associations and their member institutions.

This recently adopted European Union (EU) data protection legal framework is intended to establish rules for privacy applicable to businesses located anywhere in the world who have customers living in the EU.  This EU regulation claims jurisdiction over non-European companies, including financial cooperatives that have at least one member living in the EU, even though the EU is asserting universal jurisdiction primarily to regulate non-European technology companies like Google.

The EU’s framework requires institutions to appoint a data protection officer, have in place data protection policies that include recordkeeping and data breach notification requirements, obtain consumers’ consent to collect data, and observe other EU consumer data protection rules.  EU authorities can impose fines for non-compliance of EUR 20 million or more per violation.

The United States of America’s Commerce Department and Federal Trade Commission—the latter of which has jurisdiction over US-based privately insured credit unions—have also agreed to help require most US-based businesses to follow this framework, based in part on the Commission’s authority to prohibit unfair and deceptive acts and practices.  The US Consumer Financial Protection Bureau may issue similar guidance in the future that would apply to other US-based credit unions and banks, and EU residents may also have a private right of action to sue non-compliant companies under the US’s Computer Fraud and Abuse Act.

For further information and to review the Compliance Guide, please click here (Login Required).

WOCCU Seeks Input on Basel Market Risk Proposal

The Basel Committee on Banking Supervision has proposed a simplified alternative to the market standardized approach in an effort to facilitate adoption of the Basel Committee’s standard for minimum capital requirements for market risk for banks and credit unions that are not large and internationally active.  

The proposal in short provides for an operationally simpler (and less granular) method of calculating market risk capital in exchange for higher capital requirements and less favorable risk weights. 

Use of the proposed “Simplified Alternative” would be subject to national supervisory approval and oversight, and available only to smaller, less complex banks or credit unions.  The proposal includes a simplified version of the sensitivities-based method (“Standardized Approach”) which is the primary component of the Standardized Approach.  The Basel Committee last updated the standardized approach to market risk in January of 2016

WOCCU's initial summary and analysis of the proposal can be found here.

Please provide comments to Andy Price, Regulatory Counsel at aprice@woccu.org by September 21, 2017.

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Bank of International Settlements, Basel

Basel Committee Seeks Comment on Regulating Fintech

The Basel Committee on Banking Supervision today issued a Consultative Document seeking comment on how regulating the fintech industry, and how fintech rules may affect the banking/credit union industry.  The document makes 10 key observations and related recommendations on supervisory issues for consideration by financial institutions and supervisory authorities.  The document appears to be an attempt to level the playing field between the regulation of traditional financial institutions and the rapidly developing new technologies that appear to lower the barrier to entry into (or in some instances circumvent) the financial services market.

The document is entitled: Sound Practices:  Implications of Fintech Developments for Banks and Bank Supervisors and can be found here.  The deadline for comments is October 31, 2017.

WOCCU looks forward to providing the credit union perspective on this important topic.

 

ENCU Urges Reg Burden Relief on EBA's Deposit Guarantee Schemes Levies

The European Network of Credit Unions (ENCU) filed its comment letter on the European Banking Authority’s (EBA) guidelines on methods for calculating contributions to Deposit Guarantee Schemes (DGS) in the European Union.  Michael Edwards, vice president and general counsel of ENCU made several suggestions on the guidelines as follows:

  • Encouraged the continuation of the ability of national competent authorities to have continued discretion to exclude and adjust the core risk indicators for sectors, such as the credit union sector, based on the legal characteristics and reporting requirements of those sectors, noting that the EBA’s DGS methodology would likely impose excessive reporting requirements on credit unions without continued national discretion in this area
  • Urged the EBA to establish DGS levy guidance that takes into account the value of an institution’s covered deposits relative to the DGS funds’ total CD liabilities or total reserves, and sets higher marginal rates of DGS levies on systemically important institutions such as G-SIBs and O-SIIs;
  • Urged the EBA to recognize all private-sector Institutional Protection Schemes (IPS) in its DGS levy guidelines where the IPS has a history of providing support to its member institutions, whether or not the IPS in question is recognized officially by their national competent authority; and 
  • Opposed the use of Return on Assets (RoA) as a core individual risk indicator because credit unions, as not-for-profit cooperatives, do not seek to maximise RoA. Credit unions generally also have lower RoAs than large banks because of their financial inclusion mission, lower percentage of fee income (as opposed to interest income) as a share of total income in a low interest rate environment, and their smaller economies of scale. 

A copy of the comment letter can be viewed here.

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European Banking Authority

New Guidance Strives to Make Reg Burdens More “Proportional”

Reduced compliance burdens for community-based financial institution are closer to reality with new guidance on “proportional” regulation from the Bank for International Settlements.  The Financial Stability Institute, the arm of Bank for International Settlements that promotes regulatory consistency across jurisdictions, on August 3rd issued new guidance clarifying when supervisors are allowed to deviate from international financial rules in order to reduce burdens on community-based financial institutions.

The guidance shows the range of approaches used to achieve “proportional” regulation in Brazil, the European Union, Hong Kong, Japan, Switzerland and the USA. “National-level supervisors are supposed to apply international financial regulatory standards ‘proportionally’ to smaller, less complex institutions like credit unions, but it was not always clear what ‘proportional’ meant in practice” said Michael Edwards, vice president and general counsel of World Council. “This new guidance provides national-level regulators with examples of compliance burden reduction ‘proportionality’ in six G20 economies that supervisors have discretion to adopt in any jurisdiction.”  Concurrently, the Financial Stability Institute also issued new guidance on cyber-risk.

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Bank of International Settlements

World Council Urges AML/CFT Reg Burden Relief

World Council of Credit Unions on July 31st urged the  Financial Action Task Force to reduce anti-money laundering/countering the financing of terrorism (AML/CFT) compliance burdens in our comment letter on the FATF’s Draft Guidance for Private Sector Information Sharing.  The Task Force, which is based at the headquarters of the Organization for Economic Co-operation and Development in Paris, France, is the international standard setting body for AML/CFT rules.

We argued that the Task Force should focus on reducing paperwork burdens on cooperative financial institutions as well as establish safe harbors, eliminate legal barriers to information sharing between unaffiliated financial institutions, and increase opportunities for compliance efficiencies.  “Information sharing can play a vital role in allowing financial institutions, supervisors and law enforcement to combat money laundering, but regulators need to focus on finding efficiencies and reducing costs on credit unions” said Andrew Price, regulatory counsel for World Council.

Our comments also urged the Task Force to incorporate its “Request for Information” framework established by its recent guidance on Correspondent Banking Services into its information sharing rules.  Referencing the “Request for Information” framework will help credit unions more easily establish and maintain correspondent bank accounts by reducing the perceived compliance, examination and enforcement risks associated with correspondent banking activities. 

WOCCU Announces Advocacy Blog

The Advocacy Department is pleased to announce the creation of the Advocacy Blog designed to provide our members and the public with up to date and breaking developments affecting credit unions around the world.  "We are very excited to add this new delivery channel for our members as we are always striving to remain on the cutting edge of advocacy" says Michael Edwards, vice president and general counsel of WOCCU.


Please stay tuned to this page for regular updates affecting credit unions.