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Financial Stability Board Publishes 2021 Key Priorities

In anticipation of the FSB’s virtual meeting with the G20 Finance Ministers and Central Bank Governors on February 25, 2021, Chair, Randall K. Quarles drafted a letter outlining the FSB’s key priorities for 2021, which “address vulnerabilities directly related to COVID-19 and to increase resilience of non-bank financial intermediation (NBFI). It also aims to support strong, sustainable, and balanced growth in a post-COVID world.”

The FSB’s key priorities include:

  • Addressing COVID-19 related vulnerabilities. Including: Assessment of initial lessons learned from the COVID Event for financial stability; an April report on factors needed for an orderly unwinding of support measures; and publishing the final version of its evaluation of too-big-to-fail reforms for banks in April.
  • Increasing the resilience of NBFI. Includes: Examining and addressing specific risk factors that contributed to amplification of the March 2020 market turmoil; enhancing understanding of systemic risks in NBFI; investigating policies to address these risks; and delivering policy proposals to enhance the resilience of money market funds in July for public consultation.
  • Improving efficiency and access in cross-border payments. Including: October progress report on the implementation of the FSB roadmap to enhance cross-border payments; and an update on regulatory and supervisory approaches to global ‘stablecoins’.
  • Bettering our understanding of climate-related risks. Including: Expansion on report on the financial stability implications of climate change; coordinating with other SSBs to promote globally comparable, high-quality, and auditable standards of disclosure; and review of regulatory and supervisory approaches to address climate-related risks at financial institutions.
  • Addressing other financial stability topics of ongoing importance. Includes: Enhancing central counterparty resilience, recovery, and resolvability; exploring areas to harmonize cyber incident reporting; and ensuring a smooth transition away from LIBOR by end-2021 to more robust benchmarks.

More information on the FSB’s 2021 work program and key priorities can be found here.

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Financial Stability Board

European Council Plans Update to ePrivacy Rules

As innovation in technology increases, so does the demand on individual privacy rights. The European Council has now taken steps to manage the relationship between privacy and new technology “such as Voice over IP, web-based email and messaging services, and techniques for tracking users’ online behavior", by updating the ePrivacy Directive of 2002. On February 10, 2021, “member states agreed on a negotiating mandate for revised rules on the protection of privacy and confidentiality in the use of electronic communications services.”

The Commission’s draft regulation on ePrivacy will not only repeal the current ePrivacy directive, but it will “complement” the GDPR by filling in gaps, for example, including provisions applicable to both natural and legal persons. The Council’s mandate, in short, will apply to electronic communications content transmitted using publicly available services and networks, metadata related to the communication, and machine-to-machine data transmitted via a public network.

More details on the draft ePrivacy mandate and what it covers can be found here.

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European Commission

IFRS Foundation Trustees Meet to Address Questions on Sustainability Reporting

In December of 2020, the IFRS requested comment on their Consultation Paper on Sustainability Reporting. The Trustees met on February 1, 2021 to review the responses to the first three questions in the consultation paper:

  1. Is there a need for a global set of internationally recognised sustainability reporting standards? (a) If yes, should the IFRS Foundation play a role in setting these standards and expand its standard-setting activities into this area?
  2. Is the development of a sustainability standards board (SSB) to operate under the governance structure of the IFRS Foundation an appropriate approach to achieving further consistency and global comparability in sustainability reporting?
  3. Do you have any comment or suggested additions on the requirements for success as listed in paragraph 31 (including on the requirements for achieving a sufficient level of funding and achieving the appropriate level of technical expertise)?

Upon review of the feedback it was clear that there is a “growing and urgent demand to improve the global consistency and comparability in sustainability reporting, as well as strong recognition that urgent steps need to be taken and broad demand for the IFRS Foundation to play a role in this.“ As a response, the Trustees have committed to forming a Trustee Steering Committee, as well as continued analysis of the consultation responses to determine whether to establish a new board. It is expected that the Trustees will draft a proposal including a roadmap and timeline by the end of September 2021, with a possible announcement of a sustainability standards board at the United Nations Climate Change Conference in November 2021.

More information on the Trustee's meeting and sustainability efforts can be found here.

World Council's response to the IFRS' Consultation Paper on Sustainability Reporting can be found here.

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IFRS

BIS Innovation Hub Announces Key Priorities to Advance Financial Technology

On January 22, 2021, the Bank for International Settlements Innovation Hub (BISIH) announced a work programme focusing on six key areas to address “international collaboration among central banks on innovative financial technology”. These areas include: suptech and regtech; next-generation financial market infrastructures; central bank digital currencies; open finance; green finance; and cyber security.

In addition to launching the Innovation Network to support their priorities, BISIH plans to launch a series of projects including:

  • “a proof of concept solution for a regulatory reporting platform employing data analytics and data visualisation to provide supervisors with deeper and more timely insights to address risks;
  • a proof of concept platform using multiple wholesale CBDCs to explore the feasibility of faster and cheaper cross-border payments;
  • a technological research project and associated prototype(s) for tiered retail CBDC distribution architectures; and
  • a distributed ledger technology prototype for distribution of tokenised green bonds to retail investors.”

More information regarding the Bank for International Settlements Innovation Hub work programme and the Innovation Network can be found here.

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Bank of International Settlements

BIS Highlights Covid-19 Cyber Risks

The Bank for International Settlements (BIS) highlighted cyber risks in the financial sector in its recent issued BIS Bulletin.  The conclusions of this document notes the following:
  • The financial sector has been hit by hackers relatively more often than other sectors during the Covid-19 pandemic.
  • While this has not yet led to significant disruptions or a systemic impact, there are substantial risks from cyber attacks for financial institutions, their staff and their customers going forward.
  • Financial authorities are working to mitigate cyber risks, including through international cooperation.
A copy of BIS Bulletin No. 37 can be viewed here.
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Bank of International Settlements

World Council Responds to IFRS Foundation’s Consultation Paper on Sustainability Reporting

In September 2020, the International Accounting Standards Board requested stakeholders to respond to the IFRS Foundation’s questions on sustainability reporting found in their Consultation Paper on Sustainability Reporting. The consultation paper hoped to address concerns surrounding consistency and comparability in sustainability reporting.  According to the IFRS, “A set of comparable and consistent standards will allow businesses to build public trust through greater transparency of their sustainability initiatives, which will be helpful to investors and an even broader audience in a context in which society is demanding initiatives to combat climate change.”

World Council supported the IFRS’ goal to implement internationally recognized sustainability reporting standards as well as the development of a sustainability standards board (SSB) but requested that the IFRS consider small financial cooperatives when creating sustainability reporting standards. World Council asked that these standards avoid overburdensome reporting requirements; and include goals for financial inclusion as a requirement essential for the success of the SSB’s implementation.

World Council’s response to the IFRS’ Consultation Paper on Sustainability Reporting can be found here.

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International Accounting Standards Board, Comment Letter

World Council Comments on IASB Discussion Paper on Business Combinations

The International Accounting Standards Board requested comment on their Discussion Paper regarding Business Combinations – Disclosures, Goodwill and Impairment. World Council supported the adoption of the scheduled goodwill amortization as well as simplifications offered for the impairment test, but urged the disclosure of scheduled goodwill amortization as a separate item outside of the operating result. World Council expressed concern that this disclosure would “require the disclosure of internal confidential information that, if disclosed, could operate to the detriment of a company.”

World Council’s comments on IASB’s Discussion Paper on Business Combinations – Disclosures, Goodwill and Impairment, can be found here.

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International Accounting Standards Board, Comment Letter

Basel Provides WOCCU Advocated Relief for Non-Performing Loans

The Basel Committee on Banking Supervision amended its capital requirements for non-performing loan securtisations throuh a WOCCU advocated technical amendment Capital treatment of securitisations of non-performing loans. The rule closes a gap in the Basel framework by setting out prudent and risk sensitive capital requirements for non-performing loan securitisations.

The final rule permits banks to apply the external ratings-based approach to non-performing loans securitisation exposures, without the 100% risk weight floor. In addition, the rule refines the definition of discount incurred by the originating bank that factors in the capital requirements.

WOCCU commented on this proposal in June advocating for relief in connection with the securitisations of non-performing loans.  The rule should make it easier and cheaper for banks and credit unions to securtise non-performing loans which will be important as institutional stress increases as a result of COVID-19. 

A copy of the amendment can be viewed here.

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Basel

WOCCU Applauds G20 Focus on Financial Inclusion

The G20 at the G20 Riyadh Summit in Saudi Arabia released its Leaders' Declaration with a notable focus on financial inclusion.  In particular the Declaration notes that mobilizing sustainable finance and strengthening financial inclusion are important for global growth and stability.  Further, .the G20 also  endorsed the G20 High-level Policy Guidelines on Digital Financial Inclusion for Youth, Women, and SMEs prepared by the Global Partnership for Financial Inclusion (GPFI) and welcomed the 2020 G20 Financial Inclusion Action Plan, which will guide the work of the GPFI for the next three years.

WOCCU welcomes this focus on financial inclusion noting that credit unions often play a critical role during a time of crisis, such as the COVID-19 pandemic and providing access to responsible affordable financial products is often necessary to help protect the most vulnerable segments of society.  WOCCU applauds the G20 recognition that enhancing access to opportunities for all and promoting inclusive growth will help reduce inequalities around the world.

Other items addressed by the Declaration of interest to credit unions include statements on the following topics:
  1. Payments;
  2. Too-Big-To-Fail;
  3. Libor;
  4. Financial Stability/Financial Inclusion;
  5. Climate Change;
  6. Digitization;
  7. COVID-19 Recovery;
  8. AML/CFT; and
  9. Women's Empowerment.
A copy of the G20 Leaders' Statement can be viewed here

FSB Sets Out Progress on Interest Rate Benchmark Reform

The Financial Stability Board (FSB) published a progress report on implementation of reforms to major interest rate benchmarks.

The roadmap sets out a timetable of actions for financial and non-financial sector firms to take in order to ensure a smooth LIBOR transition by end-2021.

With only one year left, all market participants – both financial and non-financial firms across the globe – must now ensure they follow the necessary steps to avoid disruption to the performance of their contracts. For transition to occur on time, market participants will need to cease use of LIBOR as a benchmark in all new activity across global markets as soon as possible and this needs to be a key priority for the months ahead.

The report outlines various efforts on the transition.  The report can be viewed here.

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Financial Stability Board

FSB Examines Financial Stability Implications of Climate Change

The Financial Stability Board (FSB) published a report that examines the potential implications of climate change for financial stability. The report analyses how climate-related risks might be transmitted across, and might be amplified by, the financial system, including across borders. It also sets out next steps for the FSB’s work in this area.

The report discusses various risks and notes that financial institutions can take various actions – and are taking actions – to reduce or manage their exposure to climate-related risks. However, the efficacy of such actions taken by financial firms may be hampered by a lack of data with which to assess clients’ exposures to climate-related risks, or the magnitude of climate-related effects. Robust risk management might be supported by initiatives to enhance information with which to assess climate-related risk.

A copy of the report can be viewed here.

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Financial Stability Board

FSB Letter to G20 Notes Continued Financial Uncertainty

A letter from the Financial Stability Board (FSB) Chair, Randal K. Quarles, to G20 Leaders ahead of their November Summit, notes that while financial conditions have continued to ease the global economic outlook remains uncertain and financial stability risks elevated.  In his letter, the FSB outlines three responses to financial stability vulnerabilities resulting from COVID-19 as follows:  

  • Coming to a shared diagnosis – the letter notes that the market turmoil in March manifested itself differently in countries around the world. Emerging market economies experienced severe strains in offshore US dollar funding markets; whereas some advanced economies experienced significant outflows from certain types of investments. The FSB’s holistic review assesses the initial stages of the COVID-19 Event as having exposed a number of common strengths and vulnerabilities across the global financial system.
  • The need for continued vigilance and policy support – the challenges posed by the COVID Event have by no means dissipated yet. Persistent economic uncertainty and still elevated financial stability risks call for continued vigilance. The FSB continues to carefully monitor for signs of emerging vulnerabilities. The protracted nature of the COVID Event requires continued efforts to support financial resilience and ensure a sustained flow of financing to the real economy.
  • Enhancing financial sector resilience going forward – the COVID-19 Event has provided an opportunity to further assess financial stability risks and to refine measures put in place after the 2008 global financial crisis, where appropriate. These lessons can help strengthen financial sector resilience to better prepare for future shocks.

A copy of the letter and other responses to the COVID-19 crisis can be viewed here.

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Financial Stability Board

WOCCU Recommended Proportionality Included in FATF Proliferation Financing Guidance

The Financial Action Task Force adopted amendments to Recommendations 1 and 2 and their Interpretive Notes that require countries and the private sector to identify, and assess the risks of potential breaches, non-implementation or evasion of the targeted financial sanctions related to proliferation financing, as contained in FATF Recommendation 7, and to take action to mitigate these risks, as well as to enhance domestic co-ordination.  

WOCCU commented on these amendments and urged clear direction to national-level regulators to tailor these regulations proportionately for credit unions.

FATF responded by encouraging countries to implement the new requirements in a manner that is consistent with these objectives and apply measures proportionate to the risk of the relevant institutions.

FATF further reiterated its strong support to financial inclusion goals. Ensuring that financially excluded or under-served groups have access to regulated financial or non- financial services without compromising the measures that exist for the purpose of AML/CFT/CPF is a key policy priority.

A copy of the press release and corresponding amendment can be viewed here.

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FATF

WOCCU Urges Proportionality in Basel Operational Resilience Principles

In two separate comment letters WOCCU urged proportionality and consideration of regulatory restraints for credit unions when implementing requirements for operational resilience and the management of operational risk. 

The two related consultations are being proposed by the Basel Committee on Banking Supervision in their  Consultative Document:  Principles for Operational Resilience and Consultative Document:  Revisions to the Principles for the Sound Management of Operational Risk.

In the letter, WOCCU noted that national-level prudential regulators are hesitant to fully proportionally tailor requirements for smaller, community-based financial institutions such as credit unions and therefore requested further emphasis on requiring consideration of proportional implementation of the standard.  WOCCU supports many of the principles surrounding operational resilience and the management of operational risk, but believes it should be done in a manner appropriate for credit unions.

A copy of the letters can be viewed here and here

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Basel

WOCCU Urges IASB to Expand IFRS for SMEs Standard

The World Council of Credit Unions urged the IASB to allow a greater use of the IFRS for SMEs Standard and in particular to make it easier for credit unions to utilize the standard.  The comments came as a part of the Request for Information on the IFRS for SMEs Standard issued by the International Accounting Standards Board. 

In particular, WOCCU noted that allowing some credit unions—especially smaller institutions and those in developing countries— would help limit excessive compliance burdens on small credit unions and reduce the burden on those smaller financial institutions in developing countries.  WOCCU urged the IASB to allow expressly the ability to state financials in conformity with the IFRS for SMEs standard noting that this could be accomplished with little effort and without defeating the purpose of the standard.

A copy of the letter can be viewed here.

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International Accounting Standards Board

FSB Delivers Roadmap on Cross-Border Payments

The Financial Stability Board (FSB) published a roadmap to enhance cross-border payments. The roadmap has been delivered to G20 Finance Ministers and Central Bank Governors for their consideration. .

The G20 has made enhancing cross-border payments a priority during the Saudi Arabian Presidency. Faster, cheaper, more transparent and more inclusive cross-border payment services, including remittances, while maintaining their safety and security, would have widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.

Te report sets out actions and timelines in the following five focus areas:

  • Committing to a joint public and private sector vision to enhance cross-border payments
  • Coordinating on regulatory, supervisory and oversight frameworks
  • Improving existing payment infrastructures and arrangements to support the requirements of the cross-border payments market
  • Increasing data quality and straight-through processing by enhancing data and market practices
  • Exploring the potential role of new payment infrastructures and arrangements.
A copy of the roadmap can be viewed here.
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Financial Stability Board

FSB Publishes LIBOR Global Transition Roadmap

The Financial Stability Board (FSB) today published a global transition roadmap for LIBOR. The roadmap sets out a timetable of actions for financial and non-financial sector firms to take in order to ensure a smooth LIBOR transition by end-2021.

In July the FSB reaffirmed that financial and non-financial sector firms across all jurisdictions should continue their efforts to make wider use of risk-free rates in order to reduce reliance on IBORs where appropriate and in particular to remove remaining dependencies on LIBOR by the end of 2021.

Among the steps in the Roadmap:

  • Firms should have already, identified and assessed all existing LIBOR exposures and agreed on a project plan to transition in advance of end-2021.
  • By the end of 2020, firms should be in a position to offer non-LIBOR linked loans to their customers.
  • By mid-2021, firms should have established formalised plans to amend legacy contracts where this can be done and have implemented the necessary system and process changes to enable transition to robust alternative rates.
  • By end-2021, firms should be prepared for LIBOR to cease
A copy of the press release can be viewed here.
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Financial Stability Board

BIS Issues Report on Central Bank Digital Currency

A group of seven central banks together with the Bank for International Settlements (BIS) today published a report identifying the foundational principles necessary for any publicly available Central Bank Digital Currencies (CBDCs) to help central banks meet their public policy objectives. The report outlines foundational principles and core features of a CBDC.

The report, Central bank digital currencies: foundational principles and core features, was compiled by the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank, the Swiss National Bank and the BIS, and highlights three key principles for a CBDC:

  • Coexistence with cash and other types of money in a flexible and innovative payment system.
  • Any introduction should support wider policy objectives and do no harm to monetary and financial stability.
  • Features should promote innovation and efficiency.

The group of central banks will continue to work together on CBDCs, without prejudging any decision on whether or not to introduce CBDCs in their jurisdictions.

A copy of the report can be viewed here.

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Bank of International Settlements

IFRS Consults on Sustainability Reporting Standards

The Trustees of the IFRS Foundation (IFRS) have published a Consultation Paper to assess demand for global sustainability standards and, if demand is strong, assess whether and to what extent the Foundation might contribute to the development of such standards.

Amid heightened focus on environmental, social and governance (ESG) matters, developments in sustainability reporting and increased calls for standardisation of such reporting, the IFRS is now seeking stakeholder input on the need for global sustainability standards.

The Consultation Paper sets out possible ways the IFRS might contribute to the development of global sustainability standards by broadening its current remit beyond the development of financial reporting standards and using its experience in international standard-setting, its well-established and supported standard-setting processes and its governance structure.

A copy of the consultation can be viewed here.

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International Accounting Standards Board

FSB Publishes Report on the Rise of RegTech and SupTech

The Financial Stability Board (FSB) released a report entitled, The Use of Supervisory and Regulatory Technology by Authorities and Regulated Institutions: Market developments and financial stability implications. Within the report are 28 case studies that outline the use of SupTech and RegTech tools, and notes “that technology and innovation are transforming the global financial landscape, presenting opportunities, risks and challenges for regulated institutions and authorities alike.” The report will be provided to the G20 Finance Ministers and Central Bank Governors at their virtual meeting on October 14, 2020.

The report also highlights the possibility to improve financial stability through supervisory and regulatory technology: “For authorities, the use of SupTech could improve oversight, surveillance and analytical capabilities, and generate real time indicators of risk to support forward looking, judgement based, supervision and policymaking. For regulated institutions, the use of RegTech could improve compliance outcomes, enhance risk management capabilities and generate new insights into the business for improved decision-making.”

More information on the FSB report regarding SubTech and RegTech can be found here.

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Financial Stability Board

ENCU Congratulates McGuinness on Appointment as Commissioner

The European Network of Credit Unions (ENCU) and its members extended congratulations to Mairead McGuinness on her appointment as a Commissioner in charge of Financial Services, Financial Stability and Capital Markets. 

ENCU further welcomed the Commissioner's agenda for the future of the European financial sector noting its commitment to ensuring access to credit for ordinary Europeans and adequate protections for struggling borrowers amid the crisis.  Credit unions make an important contribution to the European social economy by supporting thousands of communities and more than 7 million European households with affordable financial services.

ENCU currently represents approximately 1,000 credit unions in the European Union (EU) with more than EUR 20 billion in total assets thrhough its member countries of Croatia, Estonia, Ireland, Republic of North Macedonia, Moldova, Netherlands, Poland, Romania, and Ukraine, 

A copy of the letter can be viewed here

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ENCU

WOCCU Urges Proportionality for FSB’s Evaluation of Too-Big-to-Fail Reforms

The Financial Stability Board (FSB), requested comment on their Consultation Report on the Evaluation of the effects of too-big-to-fail (TBTF) reforms for systemically important banks. The reforms under evaluation included, “ (i) standards for additional loss absorbency through capital surcharges and total loss-absorbing capacity requirements; (ii) recommendations for enhanced supervision and heightened supervisory expectations; and (iii) policies to put in place effective resolution regimes and resolution planning to improve the resolvability of banks.” Although TBTF reforms were constructed for systemically important banks, WOCCU emphasized that these reforms have indirectly affected credit unions due over regulation by national level regulators that uses TBTF reforms as a standard across all financial institutions regardless of the size, risk, and complexity of the institution. WOCCU’s response to the FSB’s Consultation Report can be found here.

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Comment Letter, Financial Stability Board

Credit Unions Mentioned in IFRS Virtual Conference

At the IFRS Foundation's IFRS Virtual Conference a panel discussing the Second Comprehensive Review of the IFRS for SMEs Standard mentioned that credit unions in particular were interested in clarifying the scope of the IFRS for SME standard to clarify that IFRS for SMEs can be used for purposes of calculating Expected Credit Losses and other accounting measures. WOCCU is pleased to hear that this possibility will be considered by IFRS.

Currently the United Kingdom and the Republic of Ireland base their requirements on IFRS for SMEs.  Small credit unions in the United States allows credit unions under $10 million in assets to follow Regulatory Accounting Principles which are similarly less stringent than G.A.A.P.  Many countries are reluctant to allow the use of IFRS for SMEs for accounting purposes for credit unions because the lack of clarity surrounding the applicability of the "publicly accountable" standard, which many regulators interpret as prohibiting them from using the standard for credit unions.

WOCCU has urged clear expansion of the standard as use of the IFRS for SME standard would represent a lighter and more appropriate treatment of IFRS 9/CECL for credit unions.  WOCCU intends to comment on the review by the close of the October 28 comment period.

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International Accounting Standards Board

Basel Updates Workplan to Include COVID-19 Analysis

The Basel Committee on Banking Supervision (Committee) approved an updated workplan to evaluate its post crisis reforms to include lessons learned from the COVID-19 pandemic.  The Committee is currently consulting on a set of principles to enhance banks' operational resilience.

The Committee noted that the financial sector is on a more stable footing, thanks in part to the Basel III post-crisis reforms.  The reforms helped to make banks' capital and liquidity resources are greater than during the Great Financial Crisis of 2007-09, thus making them more resilient.

As part of this evaluation the Committee noted that it incorporate lessons learned from the Covid-19 crisis. The Committee will conduct a range of empirical analyses to evaluate:

  • the extent to which its post-crisis reforms have achieved their objectives;
  • the interactions among the Basel III reforms and other post-crisis reforms; and
  • whether there are gaps in the regulatory framework or significant unintended effects.
A copy of the press release can be viewed here.
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Basel

ENCU Urges EBA to Address De-risking

The European Banking Authority (EBA) called for input to understand the impact of de-risking on financial institutions and customers. The European Network of Credit Unions responded to the EBA’s directed questions and highlighted that credit unions are often the subject of de-risking by banks. Reasons for this include perceived regulatory burden and risks associated with AML/CFT requirements and the potential to eat into profits; confusion surrounding responsibility associated with AML/CFT requirements; and conflicting privacy standards in various countries creating difficulty navigating cross-border operations. ENCU noted that de-risking has reduced access to bank services causing credit unions to seek these services from second and third tier banks, which in turn has proven to be costly and burdensome, and therefore a deterrent to the provision of these services to its members.

ENCU’s comment letter to the EBA regarding the impact of de-risking on financial institutions can be found here.

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European Banking Authority, Comment Letter