The Bank for International Settlements issued its BIS locational banking statistics (LBS)  on global liquidity indicators.  The key findings of this report are as follows:

• Banks' cross-border claims fell by $1.4 trillion in Q4 2022, slowing the year-on-year (yoy) growth rate to 6%. Both lower bank credit (ie loans and holdings of debt securities) and a drop in the market value of banks' derivatives and other residual instruments contributed to the decline.
• Global cross-border bank credit (ie loans and holdings of debt securities) fell by $749 billion, or $400 billion on a seasonally adjusted basis. Euro-denominated credit declined by $231 billion after expanding earlier in the year.
• Cross-border bank credit to emerging market and developing economies (EMDEs) fell by $179 billion in Q4 2022 due to weaker dollar lending. Credit to the Asia-Pacific region contracted the most.
• The BIS global liquidity indicators (GLIs) show a large contraction in dollar credit to non-banks in EMDEs in Q4 2022. Dollar credit to EMDEs shrank by 4%, a rate last seen during the Great Financial Crisis of 2007–09.

Given the recent failures around the world of banks, largely as a result of aggressive action to contain inflation, watching this data may give insight into future policy on liquidity and capital in the future.

In March of this year 2023, the Basel Committee on Banking Supervision met in Hong Kong and virtually to discuss current market developments, risks and vulnerabilities to the global banking system, and policy and supervisory initiatives including review of its Core Principles for Effective Banking Supervision. Recent market developments have highlighted the need for “resilient global banking system underpinned by effective bank governance and risk management practices, robust regulatory standards, and strong supervision supported by proactive cross-border cooperation.” According to the Basel Committee, current risks include inflation, lower growth and geopolitical tensions; and in response the Committee plans to implement the Basel III framework “in a full and consistent manner”.

The Committee also examined the Pillar 3 disclosure framework for climate-related financial risks and how it will coincide with the International Sustainability Standards Board’s (ISSB) disclosure initiatives. The Committee further reviewed progress to its Core principles for effective banking supervision ("Basel Core Principles"), and approved a workplan related to its global bank prudential standard for cryptoassets and work programme, to mitigate risks to the global banking system.

 More information on the Basel's Committee's meetings to discuss market developments and risks is available here. 

The International Accounting Standards Board (IASB) met in March to initiate its project to examine how to improve companies’ disclosures on climate-related risks. In March 2021, the IASB published a request for information on its Third Agenda Consultation, and received feedback that:

• “climate-related risks are often perceived as remote, long-term risks and may not be appropriately considered in the financial statements; and
• investors need better qualitative and quantitative information about the effect of climate-related risks on the carrying amounts of assets and liabilities reported in the financial statements.”

Some of the questions the IASB received from the open consultation included, “why companies that are expected to be affected by climate-related risks do not provide information about these effects in their financial statements; why companies that have made net zero commitments do not recognize liabilities or impair the value of their assets as a result of those commitments; and how companies should factor long-term uncertainties into the measurement of amounts in the financial statements.” The project expects to address these questions and consider any additional amendments, guidance, and educational materials that may be effective to address stakeholder concerns. The project will align with the ISSB’s (International Sustainability Standards Board) standards and will use the ISSB’s final deliberations on its initial set of standards as a guide.

More information on the IASB’s project on climate-related risks in financial statements is available here.

The International Accounting Standards Board (IASB) has plans to amend the IFRS for SMEs Standard on June 1, 2023 through publication of its Exposure Draft International Tax Reform—Pillar Two Model Rules—Proposed Amendments to the IFRS for SMEs Standard, which will be available through the Amendments to the IFRS for SMEs Accounting Standard—International Tax Reform—Pillar Two Model Rules project page and its Open for comment section.

“The IASB tentatively decided to propose amendments to the IFRS for SMEs Standard:

• to introduce a temporary exception to the requirements in Section 29 of the Standard for an entity to recognise and disclose information about deferred tax assets and liabilities related to Pillar Two income taxes;
• to make the temporary exception mandatory;
• not to specify how long the temporary exception will be in place;
• to require an entity to disclose that it has applied the temporary exception;
• to require an entity to apply these amendments immediately upon their issuance and retrospectively in accordance with Section 10 of the Standard (‘Accounting Policies, Estimates and Errors’);
• to require an entity to disclose separately its current tax expense (income) related to Pillar Two income taxes; and
• to require an entity to apply this disclosure requirement for annual reporting periods beginning on or after 1 January 2023.”

More information on the IASB proposed amendment to the IFRS for SMEs Standard for OECD tax reform is available here.

The Financial Stability Issued and Executive Summary of Proportionality in Banking Supervision to summarize various proportionality approaches to implementing the Basel III Framework.  Notable in the summary is the reiteration of the principles of proportionality built into the Basel III Framework and most recently elaborated on the Basel Committee on Banking Supervision’s High-level Considerations on Proportionality.

Notably the summary indicates that proportionality provides supervisory authorities with options for adopting simpler standardized approaches and that in some jurisdictions, even the simpler approaches might require further adaptation. 

The summary notes that the Basel Framework is the full set of standards for the oversight of internationally active banks (IABs) in member jurisdictions of the Basel Committee on Banking Supervision (BCBS). This framework includes the Core Principles for Effective Banking Supervision (BCPs) and regulatory (Pillar 1), supervisory (Pillar 2) and disclosure (Pillar 3) standards. Although the BCPs are universally applicable, the remaining elements of the Basel Framework (the three pillars) are the standard for IABs. To accommodate the diversity of banks and banking systems, the BCPs embed the concept of proportionality. Proportionality allows assessments of compliance with the BCPs that are commensurate with the risk profile and systemic importance of a broad spectrum of banks.

This summary makes it clear that national-level regulators have the appropriate tools to tailor regulations more appropriate for smaller, less-complex community based cooperatives such as credit unions.

A copy of the Executive Summary can be viewed here.

The Financial Stability Board issued its report setting out 16 recommendations to address these issues with a view to promote best practices in cyber incident reporting. Included in the Recommendations to Achieve Greater Convergence in Cyber Incident Reporting, were several recommendations made by World Council including proportionality language to help smaller community based financial institutions and language surrounding feedback loops to assist credit unions in defending themselves against cyber-attacks.

The report draws from the FSB’s body of work on cyber, including engagement with external stakeholders, the report identifies commonalities and details practical issues associated with the collection of cyber incident information from FIs and the onward sharing between financial authorities. These practical issues include:

1. operational challenges arising from the process of reporting to multiple authorities;
2. setting appropriate and consistent qualitative and quantitative criteria/thresholds for reporting;

• establishing an appropriate culture to report incidents in a timely manner;

1. inconsistent definitions and taxonomy related to cyber security;
2. establishing a secure mechanism to communicate on cyber incidents; and
3. legal or confidentiality constraints in sharing information with authorities across borders and sectors.

A copy of the report can be viewed here.

The Financial Action Task Force finalized its guidance to provide tougher global beneficial ownership standards in its Recommendation 24 by requiring countries to ensure that competent authorities have access to adequate, accurate and up-to-date information on the true owners of companies. This guidance will help implement the revised Recommendation 24.  If implemented properly by national-level authorities, it will provide efficient and rapid access to the information for use by financial institutions including credit unions to help with their AML/CFT responsibilities with respect to legal entities. 

WOCCU advocated for this approach which should help ease regulatory burdens associated with opening accounts and doing business with legal entities.  The guidance will help countries identify, design and implement appropriate measures in line with the revised Recommendation 24 to ensure that beneficial ownership information is held by a public authority or body functioning as a beneficial ownership registry, or an alternative mechanism is readily available for use by credit unions.  Further,  the Standard will help prevent the organised criminal gangs, the corrupt and sanctions evaders from using anonymous shell companies and other businesses to hide their dirty money and illicit activities.

A copy of the finalized standard can be viewed here.

The International Accounting Standards Board (IASB) has added a project to its work plan to explore whether and how companies can provide better information about climate-related risks in their financial statements.

The initiation of the project responds to feedback received from the IASB’s recent Agenda Consultation for the IASB to enhance the reporting of climate-related risks in the financial statements.

In undertaking the project, the IASB will consider the work of the International Sustainability Standards Board (ISSB) to ensure any proposals work well with IFRS Sustainability Disclosure Standards and that any information required by the two boards would be complementary. The first two IFRS Sustainability Disclosure Standards are due to be issued by the end of Q2 2023.

The project was discussed at a recent IASB meeting noting that the project will research to what extent the educational material published in 2020 is helping companies reflect the effects of climate‑related risks in the financial statements, and what actions, if any, the IASB could take to further improve information about these matters.

World Council recently released its Guide to International Sustainable Finance Regulations “What Credit Unions Should Know About Sustainable Finance”, a guide to help credit unions understand many of the international standards and emerging regulatory frameworks surrounding climate-related and sustainable finance issues wherein it discusses recent developments in disclosures by the ISSB.

A copy of the press release can be viewed here.

The BIS Innovation Hub Singapore Centre and partners announced the successful connection of the test versions of three established IPS using the Nexus model and outlined the next phase of the project to work on the real-world potential of a multilateral network that could be scaled up across more countries.  The press release noted the following:

• To enhance cross-border payments, the BIS Innovation Hub Singapore Centre developed the Nexus concept of a first-of-its-kind multilateral network connecting multiple domestic instant payment systems (IPS).
• Nexus prototype successfully connected the test IPS of the Eurosystem, Malaysia and Singapore, allowing payments to be sent across the three using only mobile phone numbers.
• In the next phase, BIS and the central banks of Indonesia, Malaysia, the Philippines, Singapore and Thailand will jointly work towards connecting their domestic IPS through Nexus.

The Nexus report provides details on the early experiments and technical specifications for the multilateral interlinking of payment systems. The success of the experiment paves the way for the BIS Innovation Hub Singapore Centre to explore the practical applications of a distributed multilateral network.

This efforts supports the G20 priorities of improving the cost, speed, access and transparency of cross-border payments by connecting domestic IPS across multiple countries through a standardised and multilateral approach.  The Innovation Hub's Singapore Centre is now collaborating with these central banks to facilitate their design processes, as they aim to connect their domestic payment systems.

This development is significant for credit unions in that it demonstrates efforts to transform the payments space and can have a profound effect on credit unions’ participation and engagement in the payments space.

The Basel Committee on Banking Supervision met in Hong Kong to take stock of recent developments and risks in the global banking system along with discussing a range of policy initiatives.

In particular the Committee noted that the risks of high inflation, lower growth and geopolitical tensions are posing risk management challenges to banks. Years of unprecedentedly low interest rates underpinned the build-up of leverage across household and corporate sectors. As most central banks raise interest rates to combat inflation, borrowers are now facing sharply rising debt service burdens. A broad-based repricing in asset markets could also expose banks to additional risks.

The Basel Committee directed banks and supervisors to be vigilant to the evolving outlook to ensure that the global banking system is resilient. In addition, the Committee agreed to take stock of the regulatory and supervisory implications stemming from recent events, with a view to learn lessons.

On other related topics the Basel Committee discussed the following policy initiatives:

1. Climate-related financial risks

The Committee discussed its work related to the development of a Pillar 3 disclosure framework for climate-related financial risks. The purpose of the framework is to provide additional bank disclosures about the prudential risks. This framework would complement, and be interoperable with, parallel disclosure initiatives under way by the International Sustainability Standards Board and other authorities. The Committee will issue a consultation paper on the proposed

2. Cryptoassets

Following the publication of a prudential treatment for banks' exposures to cryptoassets last year, the Committee approved a workplan to continue to assess and mitigate risks from cryptoassets to the global banking system. This includes a set of targeted reviews of the prudential treatment, including with regard to the treatment of permissionless blockchains and the eligibility criteria for "Group 1" stablecoins. The Committee will also continue to monitor banks' cryptoasset activities and exposures, including their role as potential issuers of stablecoins and tokenised deposits, custodians of cryptoassets and interconnections with other nodes of the cryptoasset ecosystem.

3. Implementation of Basel III reforms

The Committee members unanimously reaffirmed their expectation of implementing all aspects of the Basel III framework in a full and consistent manner, and as soon as possible, in order to further enhance the resilience of the global banking system and provide a regulatory level playing field for internationally active banks.

 A copy of the press release can be viewed here.

World Council of Credit Unions (World Council) urged the IASB to provide greater clarity in its proposed revisions to the IFRS’ Exposure Draft for IFRS for SMEs Accounting Standard (Exposure Draft), that would clearly delineate that credit unions can used the relaxed standard for its allowance for loan and lease loss accounting (IFRS 9 or CECL).  This standard is currently utilized in several countries for credit unions, however, many countries due to the current definition of “publicy accountable” contained in the current definition.  Some jurisdiction tend to view credit unions as “publicly accountable” even though the term as used in the standard tend to apply to publicly traded vs. non-publicly traded entities, thus acting as a barrier to utilization of the IFRS for SME’s standard.  Other countries have allowed accounting standards based on the IFRS for SME standard for credit unions.

While the language proposes changes that would bring some greater clarity to the definition, WOCCU urged IASB to provide certainty in the revisions noting that credit unions due to their cooperative model, their relatively small size as compared to banks, and the use of financial statements by their members would warrant such a treatment.

Explicitly allowing use of the IFRS for SME standard would prove a valuable contribution to the objective of financial inclusion, particularly in developing countries where pro forma accounting systems are imposed without regard for the size and complexity of the institution subject to the accounting standard.  Allowing credit unions to state their financials in conformity with the IFRS for SME standard will not only reduce compliance burdens and provide proportionality but will likely improve the quality of financials provided to their members and regulators.

A copy of the letter can be viewed here.

The World Council of Credit Unions today urged the G20 to take further action to increase financial inclusion through credit unions worldwide.  Specifically, World Council is requesting that the G20 provide direction to international standard setting bodies to work with national level authorities and supervisors on proportional tailoring of regulations that will allow the unique not-for-profit cooperative model of credit unions to increase access to responsible and affordable financial services to rural and underserved communities.

“While the G20 has embraced financial inclusion as the way to reduce inequality and support inclusive and sustainable growth, they need to take the next step to ensure that local, community based financial institutions such as credit unions that are best suited to achieve their goals do not have unnecessary barriers in their way.  Implementation of proportionality at the national level is key to this success,” said Andrew Price, World Council Senior VP of Advocacy and General Counsel.

These comments were elaborated on in a letter to the finance minister of India who is the Presidency of the G20 New Delhi Summit 2023.  This year it will culminate in the issuance of a Leaders’ Declaration sometime in September in 2023.  World Council is urging the G20 to adopt language furthering the ability of credit unions to address financial inclusion. 

In particular, the letter notes financial inclusion reduces inequality, which in turn supports inclusive and sustainable growth by allowing the vulnerable to remain healthy, stay out of poverty, pay for education and accumulate human capital. The proportionate application of International Standards for financial regulation is the key and a critical factor in enabling innovative financial inclusion through credit unions and achieving this goal.  The request would insure that international standard setting bodies work with national-level authorities to ensure the proper implementation of proportionality.

A copy of the letter can be viewed here.

On February 23, 2023, the Financial Stability Board (FSB) released its G20 Roadmap for Enhancing Cross-Border Payments, Priority actions for achieving the G20 targets, which was provided to the G20 Finance Ministers and Central Bank Governors ahead of their meeting that took place on February 24-25^th. The report outlines analysis and stocktakes (including stockholder feedback) garnered over the first two years following its endorsement of its Roadmap for Enhancing Cross-Border Payments, released in 2020. In addition to highlighting its priority actions for attaining G20 targets, the report details actions to meet the quantitative targets by 2027 to “provide accountability and ambition”. To address the FSB’s priorities, it will work with the Committee on Payments and Market Infrastructures (CPMI) under two industry taskforces; and the International Monetary Fund (IMF) and World Bank will give technical assistance to jurisdictions outside of the G20’s purview.

The next phase of the FSB’s work on enhancing cross-border payments will consist of three priority themes:

• Payment system interoperability and extension. Actions include the extension of RTGS operation hours, interlinking payment systems, creating a forum for central banks to exchange practices, and finalizing requirements for cross-border payment service level agreements.
• Legal, regulatory and supervisory finalizing frameworks. Actions include promoting efficient legal, regulatory and supervisory environment for cross-border payments, improving consistency of bank and non-bank regulation and supervision, enhancing information provided to end-users, and updating the application of AML/CFT rules.
• Cross-border data exchange and message standards. Actions include facilitating cross-border data exchange and standardizing messaging formats, enhancing interaction between data frameworks and cross-border payments, improving API coordination, and exploring enhanced use of the legal entity identifier (LEI).

More information on the FSB’s its G20 Roadmap for Enhancing Cross-Border Payments, Priority actions for achieving the G20 targets is available here.

On February 28, 2023, the European Council and European Parliament reached a provisional agreement on the creation of European Green Bonds (EuGB) as another step in its strategy to finance sustainable growth and “transition to a climate-neutral, resource-efficient economy”. It must be adopted by both institutions for finalization and will apply 12 months after it is entered into force. The green bonds will help issuers substantiate that the green projects they are funding are legitimate and supported by the EU taxonomy, as well as to reduce greenwashing. National competent authorities of each member state will supervise the issuance of green bonds.

In addition to a registration system for the green bonds, a supervisory framework, and voluntary disclosure requirements, “This regulation lays down uniform requirements for issuers of bonds that wish to use the designation ‘European green bond’ or ‘EuGB’ for their environmentally sustainable bonds that are aligned with the EU taxonomy and made available to investors globally.” All proceeds will be invested in economic activities under the EU taxonomy. For sectors that are not covered by the taxonomy, specific activities will be subject to a 15% flexibility pocket.

More information on the green bonds provisional agreement is available here. 

On February 8, 2023, the European Commission announced its members for the new mandate of the Platform on Sustainable Finance via a published list. The Platform on Sustainable Finance is an advisory body that is “subject to the Commission’s horizontal rules for expert groups”,[1] and will advise the Commission on the implementation and usability of the EU taxonomy with three leading deliverables, including:

1. “advising on the usability of the EU taxonomy and wider sustainable finance framework
2. advising on the technical screening criteria for the EU taxonomy
3. monitoring capital flows into sustainable investments”

The Platform consists of 28 members, five observers with environmental and sustainable finance expertise reigning from the private sector, seven directly re-appointed permanent members stemming from EU agencies and bodies, nine EU institutions and international organization sitting as observers, and Helena Viñes Fiestas as appointed Chair (inter alia Commissioner of the Spanish Financial Markets Authority and a member of the UN High-Level Expert Group on Net Zero Pledges).

More information on the Platform on Sustainable finance can be found here and on the Platform’s website here.

[1] See, Platform on Sustainable Finance, European Commission, at: https://finance.ec.europa.eu/sustainable-finance/overview-sustainable-finance/platform-sustainable-finance_en#introduction.

On February 20, 2023, in advance of the G20 meeting on February 24-25, the Financial Stability Board (FSB) released its letter from Chair, Klaas Knot to the G20 Finance Ministers and Central Bank Governors outlining its 2023 work including its objective “to monitor and address these vulnerabilities”. The letter also includes three reports covering non-bank financial intermediation (NBFI), crypto-assets and decentralized finance, and cross border payments. The FSB believes caution should be exercised when evaluating the current global economy due to “record-high” debt levels, “rising debt service costs and stretched asset valuations in some key markets". Further, the FSB plans to enhance cyber and operational resilience and will provide a revised report on cyber incident reporting. They will also work on enhancing disclosures, data and climate-related vulnerability analysis to address climate-related financial risks.

The key elements of the FSB's reports include:

• Non-bank financial intermediation: The Financial Stability Aspects of Commodity Markets report concentrates on vulnerabilities within the non-bank sector, specifically in the physical and derivatives commodities markets.
• Crypto-assets and decentralized finance: The report on The Financial Stability Risks of Decentralised Finance (DeFi) highlights vulnerabilities in DeFi systems and refers to policy recommendations to address the risks associated with DeFi, as well as data gaps for risk monitoring.
• Cross-border payments: The FSB will publish a report regarding the implementation of the G20 Roadmap to enhance cross-border payments. Two task forces will be formed “to strengthen private sector participation in taking the Roadmap forward.”

More information on the FSB’s work plans for 2023 are available here.

The Bank for International Settlements (BIS), Committee on Payments and Market Infrastructures (CPMI) released a report, Operational and technical considerations for extending and aligning payment system operating hours for cross-border payments: An analytical framework, to aid central banks and operators who plan to extend real-time gross settlement (RTGS) system operating hours with a systemic approach to render these services effectively. The report works in conjunction with the BIS May 2022 report, Extending and aligning payment system operating hours for cross-border payments. According to the report, “An extension and alignment of payment system operating hours across jurisdictions could help to speed up cross-border payments, especially between jurisdictions with significant time zone differences. It could also improve liquidity management, reduce settlement risk and enhance the performance of cross-border payment arrangements.”

While the 2022 report focused on three options for extending RTGS system operating hours to enhance for cross-border payments, including incremental increases in operating hours on current operating days, inclusion of current non-operating days, and extension to 24/7 operating hours, the 2023 report gives attention to current operating days as a short term strategy. Medium and long-term strategies are still under consideration.  

More information on BIS’ report on Operational and technical considerations for extending and aligning payment system operating hours for cross-border payments: An analytical framework, is available here.

The Bank for International Settlements issued its Bulletin entitled Addressing the risks in crypto: laying out the options to address the recent failures involving several major crypto firms.  This issues has become increasingly pressing as these emerging markets are going through booms and busts.  While they have not yet threatened financial stability the scale and prominence of these recent failures highlight the need to address the risks before crypto markets can evolve into systemic contagions.

The reports key takeaways are as follows: 

• The recent high-profile failures of FTX and other crypto firms have re-ignited the debate on the appropriate policy response to address the risks in crypto, including through regulation.
• The "shadow financial" functions enabled by crypto markets share many of the vulnerabilities of traditional finance. These risks are exacerbated by specific features of crypto.
• Authorities may consider different – not mutually exclusive – lines of action to tackle the risks in crypto. These include containment or regulation of the crypto sector or an outright ban.
• Central banks and public authorities could also work to make TradFi more attractive. A key option is to encourage sound innovation with central bank digital currencies (CBDCs).

A copy of the report can be viewed here.

The Basel Committee on Banking Supervision issued its Evaluation of the impact and efficacy of the Basel III reforms noting that the more sophisticated and multi-dimensional framework introduced through Basel III to address a variety of risks to enhance bank resilience came at the cost of greater regulatory complexity.  With respect to this complexity, the report notes a position that has been consistently argued by the World Council that “complex rules applied to simple banking activities may limit competition, giving advantages to larger and more complex banks, potentially providing incentives for banks to become even more complex and aggravating the [too big to fail] problem.”

World Council on numerous occasions to the Basel Committee stated that compliance with overly complex regulations disproportionately affect credit unions as compared to larger more complex financial institutions.  Their findings note that there are several drawbacks to a complex regulatory framework including challenges to capital planning and could lead to spurious risk assessments and a misallocation of capital.

These findings should now be of use to national level-regulators when implementing the Basel III framework who should take a proportional approach to regulations for credit unions, consistent with the proportionality built into the Basel III framework and consistent with other guidance issued by the Basel Committee.

Additionally, the report provides a holistic evaluation of the impact and efficacy of the implemented Basel III reforms assessing whether the implemented reforms have met their intended objectives, in particular of increasing bank resilience and reducing systemic risk. It also examines some potential unintended effects, notably on banks' lending and capital costs.  This report specifically provides evidence on the following:

• the impact of the capital and liquidity reforms on bank resilience and systemic risk;
• potential side effects on banks' lending and capital costs; and
• interactions among elements of the reforms and the regulatory complexity within the Basel Framework.

 A copy of the report can be viewed here.

The Basel Committee finalized its prudential standard on Cryptoasset Exposures which has been endorsed by the Committee’s oversight body, the Group of Governors and Heads of Supervision. The document sets out the final standard which the Committee has agreed to implement by 1 January 2025. The text will be incorporated into the consolidated Basel Framework shortly. After final incorporation, the standard will need to be adopted by national-level regulators before being applied to financial institutions. 

The Basel Committee stated that “[t]he standard will provide a robust and prudent global regulatory framework for internationally active banks' exposures to cryptoassets that promotes responsible innovation while preserving financial stability.”

The standard requires financial institutions to classify cryptoassets on an ongoing basis into two groups:

1. Cryptoassets that meet a full set of classification conditions covering tokenized traditional assets and cryptoassets and includes an effective stabilization mechanism;
2. Unbacked cryptoassets and cryptoassets that fail to meet any of the classification conditions and pose additional and higher risk compated with group one, accompanied by a complicated capital treatment.

A copy of the finalized standard can be viewed here.

The Basel Committee on Banking Supervision approved its 2023-2024 Work Programme outlining its strategic priorities for its policy, supervision and implementation activities.  The Committee will focus on the following key themes:

• Emerging risks and horizon scanning
• Digitalisation of finance
• Climate-related financial risks
• Monitoring and review of existing standards and guidance
• Implementation and evaluation

On digitalization the Committee will focus on the emergence of new entrants/suppliers in the banking system, the use of artificial intelligence and machine learning, big data and governance arrangements. The Committee will also conduct a deep dive analysis on the supervisory implications of Banking as a Service. Further, the Committee will continue to assess bank-related developments in cryptoasset markets, including the role of banks as stablecoin issuers, custodians of cryptoassets and broader potential channels of interconnections with the cryptoasset ecosystem as well as blockchain technology.

On sustainable finance, the Committee will continue to pursue a holistic approach to address climate-related financial risks to the global banking system. This will include work across all three pillars of regulation, supervision and disclosure. This includes considering whether additional regulatory measures are needed to address climate-related risks.

A copy of the work programme can be viewed here.

The World Council of Credit Unions urged the Financial Stability Board to consider the impact of it’s proposed revisions to international standards trying to achieve greater convergence in cyber incident reporting.  The comments came as part of the FSB’s consultation seeking to strengthen and harmonize frameworks surrounding operational resilience and the desire to increase efforts to reign in the effects of cyber incidents.

World Council agreed strongly with aspects of the consultation that are designed to get at the core roots and causes of cyber incidents.  It acknowledged that the findings of the FSB that cyber incidents are growing in frequency and sophistication and the risk of contagion across borders and sectors due to the growing interconnectedness of the financial system is likewise increasing.  It also noted that the FSB’s focus on increasing the sharing of timely and accurate information is well placed to create a system that is effective for incident response, recovery and promoting financial stability. 

World Council expressed concerns, however, that the solutions often called for expensive and extensive regulatory requirements that are not tailored to the size, risk, and complexity of credit unions, noting that credit unions rarely operate on a cross-border basis, are small in size as compared to large banks, and therefore pose little risk of contagion or “spill-over” effects on other countries.  World Council suggested that reporting be limited to simple, but actionable reporting and reporting that could be accomplished through established regulatory reporting without the need to create new bureaucracies.

The FSB is conducting this review at the request of the G20 and the ever increasing concern from regulators about the risk posed by cyber incidents.

A copy of the letter can be viewed here.

The G20 Bali Leaders’ Declaration issued November 15-16 in Bali, Indonesia addresses several issues critical to credit unions.  Issues surrounding Financial Inclusion, Sustainable Finance and Climate Change, Payments, Cryptocurrencies, Women and Vulnerable Populations, Anti-Money Laundering/Combatting the Financing of Terrorism, Cybersecurity and others were addressed.  This key document gives direction to the international standard setting bodies (i.e. Basel Committee, IASB, FATF, FSB, etc.) who will focus their workplans on issues addressed in this document. 

This is significant for credit union as it ultimately will shape regulations adopted at the national level for credit unions.  Of importance is the embrace of addressing financial inclusion which supports the risk-based approach and proportionate legal and regulatory frameworks.  This will assist convincing national-level regulators the importance of properly tailoring rules for credit unions so that they can better serve their members.

The continued focus on payments and achieving faster, cheaper, more transparent, more inclusive cross-border payments continues to receive high emphasis from the G20.  Much work is underway that will have a transformative effect on the payments space.

Finally, climate and sustainable finance and how to transform the world, businesses, society, and others to meet climate goals is a major theme throughout the Declaration.  Ultimately, credit unions will play a role in addressing these changes as well as receiving their accompanying share of regulatory burden. 

A summary of all of the provisions as well as their impact on credit unions can be viewed here.

The Financial Stability Board (FSB) noted that the gradual withdrawal of relief measures granted during the COVID-19 crisis are best withdrawn gradually. This came as part of the FSB’s report to the G20 looking at financial policies in the wake of COVID-19 aimed at supporting equitable recovery and addressing the effects from scarring in the financial sector.

The report specifically notes the following:

FSB consulted on these measures where WOCCU noted in its comment letter that it is clear that national-level regulators should have the flexibility to have an orderly and gradual withdrawal of those COVID-19 related relief measures so as to not create unnecessary shocks to the balance sheets of credit unions. This is particularly prescient given the current global economy, increasing inflation, the effects from the conflict in Ukraine and many other localized events.

This guidance provides clear direction that national-level regulators can and should use flexibility in unwinding relief measures for credit unions.

On November 10, 2022, the Financial Stability Board (FSB) published its progress report on Enhancing the Resilience of Non-Bank Financial Intermediation (NBFI), which was provided to the G20, analyzing NBFI liquidity imbalances during times of financial market stress. The report includes policy proposals directed to issues of systemic risk, especially in light of stressors within the commodities and bond markets; as well as solutions of vulnerabilities identified in “money market funds, open-ended funds, margining practices, bond market liquidity, and cross-border USD funding in emerging market economies (EMEs).” The FSB plans to work with the International Organization of Securities Commissions (IOSCO) to improve short-term funding markets, and any other work to develop the resilience of liquidity provision in core bond markets.

More information on the FSB's progress report to the G20 can be found here.