The Financial Stability Board (FSB) published a consultation report on liquidity preparedness for margin and collateral calls. The report sets out eight proposed policy recommendations to enhance the liquidity preparedness of non-bank market participants for margin and collateral calls in centrally and non-centrally cleared derivatives and securities markets (including securities financing such as repo).

In particular the report:

• Identifies weaknesses in risk management and governance as key causes of inadequate liquidity preparedness by some non-bank market participants during recent incidents of liquidity stress in financial markets.
• Proposes eight policy recommendations focused on managing and mitigating the impact of spikes in margin and collateral calls in the non-bank financial intermediation (NBFI) sector.
• Makes proposed recommendations cover liquidity risk management and governance, stress testing and scenario design, and collateral management practices of non-bank financial institutions.

The report highlights the need for policy adjustments to deal with liquidity strains in the NBFI sector arising from spikes in margin and collateral calls during times of market stress, such as the March 2020 market turmoil, Archegos, and the commodities markets turmoil and stress in liability-driven investment funds in 2022. To achieve this, the FSB is proposing eight high-level and cross-sectoral policy recommendations that build on and complement existing rules and regulations on liquidity risk management across different sectors and jurisdictions.

The recommendations cover liquidity risk management and governance, stress testing and scenario design, and collateral management practices of non-bank market participants, focussing on liquidity risks arising from spikes in margin and collateral calls. They apply to non-bank market participants that may face margin and collateral calls, including insurance companies, pension funds, hedge funds, other investment funds and family offices. They are proposed to apply proportionately with a focus on non-bank market participants with material exposures to spikes in margin and collateral calls during times of stress. The report also highlights the need for financial intermediaries in bilateral transactions with non-financial entities, such as commodities traders, to consider assessing their liquidity preparedness for spikes in margin calls and collateral during times of stress.

A copy of the consultation can be viewed here.

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for Europe met in London to discuss global an regional macroeconomic developments and their implications for financial stability.  In particular they discussed the macro-financial environment that continues to be shaped by the adjustment of the global economy to high interest rates, while geopolitical factors are weighing on the outlook.

The group noted that despite tight financing conditions and subdued confidence, growth in the region is projected to gradually pick up, amid a recovery in real incomes. In global financial markets, certain asset valuations remain stretched and vulnerable to adjustment in the face of adverse shocks. Members discussed sectors which warranted close monitoring, specifically the outlook for – and risks associated with – commercial real estate markets, which have been undergoing a substantial adjustment recently, due to both cyclical and structural shocks.

Members received an update on the FSB’s work priorities for 2024, including its deliverables under Brazil’s G20 Presidency. The effective implementation of its global regulatory and supervisory framework for crypto-asset activities and markets is a key focus for the FSB. Members shared their experiences in addressing regulatory challenges stemming from the cross-border and cross-sectoral nature of crypto-asset activities. They also exchanged views on preparations for new crypto-asset regulations entering into force, such as the Regulation on Markets in Crypto-assets (MiCA) in the European Union and the proposed regulatory regime for crypto-assets in the United Kingdom.

The Brazilian G20 Presidency has asked the FSB to take stock of new developments in artificial intelligence (AI) and their potential implications for financial stability. The day before the meeting, the RCG held a seminar with invited guests from academia and industry on AI and its role in the financial system. The discussion focused on developments in AI, use cases in the financial sector, and implications for financial stability.

A copy of the release can be viewed here.

The World Council of Credit Unions urged the G20 to adopt language in this year’s Leaders’ Declaration to embrace proportionality that can enable credit unions as community based financial institutions to address financial inclusion around the world.  This year’s Summit under Brazil’s Group of Twenty (G20) Presidency focuses on the theme “Building a Just World and a Sustainable Planet.”  This theme highlights the world’s commitment to fair agreements that promote global economic and social development and the reduction of inequality worldwide.

To that end, World Council notes that policies conducive to increasing financial literacy and consumer protection, reducing financial exclusion, bridging the digital divide among many groups, and reducing inequalities are key to an equitable future.  Specifically, the connection between proportionality an enabling non-profit, community based financial institutions can play a critical role in accomplishing these goals.

World Council notes that a barrier to the proportional tailoring of regulations often occurs at the national level.  Thus, the requested language in the Leaders’ Declaration urges international standard setting bodes such as the Financial Stability Board to work with various agencies on the implementation of proportionality that is often already imbedded in global standards.

World Council has made this a priority of its advocacy efforts joining with many of its G20 members to urge their respective finance ministers to support this effort.  The G20 has heeded World Council’s call to address financial inclusion in past years declarations and specifically last year where they embraced proportionality included in the newly adopted sustainability disclosures issued by the International Sustainability Standards. 

This year’s Summit will occur later this year in November.  A copy of the letter can be viewed here.

Years of diligent advocacy work by the Customer Owned Banking Association (COBA) has resulted in the Treasurer of Australia establishing a regulatory roadmap to ensure the country’s major financial service regulators coordinate and provide visibility of proposed regulatory reforms going forward. COBA, World Council’s direct member organization in Australia, spent the last several years meeting with key government officials and regulators to advocate for the creation of a financial sector regulatory grid.

Based on these efforts, the new regulatory roadmap will help regulators avoid duplication, engage with financial service businesses and improve implementation practices. This change to coordinate and provide a regulatory roadmap will particularly help medium-sized and smaller financial service providers, allowing them to better anticipate regulations that might impact their business in the future and the resources needed for compliance.

The regulatory roadmap is based on a system currently used in the United Kingdom, and will be a rolling, 24-month program of regulatory initiatives impacting the financial sector. The roadmap will be updated twice a year and include proposed legislation, rules and regulations, and standard making, consultation processes and data collection processes. This advanced planning and coordination is expected to facilitate better engagement between financial service providers and regulatory agencies with coordinated priorities and greater visibility to better discuss regulatory implementation methods.  

Click here to read the Treasurer’s announcement and learn more about the key regulatory advocacy success of COBA.

The Basel Committee on Banking Supervision (the Committee) recently met to discuss key items impacting the financial service markets.

The Basel Committee announced it will be revising the Core principles for effective banking supervision (Core Principles). Following comment letters from stakeholders, including the World Council of Credit Unions, the Committee approved the first revisions to the Core Principles since 2012. The final standards will be published following the International Conference of Banking Supervisors at the end of April. The Core Principles are global standards for prudential regulation and supervision. Supervisory authorities across the globe use the Core Principles as a benchmark for evaluating the effectiveness of their regulatory and supervisory frameworks. World Council strongly urged the Basel Committee to include more direct language concerning proportionality and communication with national level supervisory authorities. We also highlighted the disproportionate burden recent regulatory guidance places on credit unions in key areas, such as operational resilience, stress testing, and climate risk management. Click here to read the comment letter submitted by World Council.

During their recent meeting the Committee also discussed developing risks to the global banking system, window-dressing behavior by large banks, and the status of Basel III implementation.

The Committee discussed climate-related financial risks as one of the top ongoing and developing risks for financial institutions. It discussed scenario analysis as a tool for assessing the resilience of financial institutions business models, strategies, and overall risk profile. A discussion paper will be published in the coming months on the use of climate scenario analysis by banks and supervisors. The Committee also discussed sector risks, including segments of commercial real estate facing headwinds and banks’ interconnections with non-bank financial intermediaries.

Finally, the Committee reported on the implementation status of the outstanding Basel III standards, issued in 2017. Implementation is progressing but is uneven between countries. The Committee approved a workplan for the jurisdictional assessments of the implementation of these standards as part of the Committee’s Regulatory Consistency Assessment Programme.  

Click here for more information on the updates provided by the Basel Committee.

The Financial Stability Board (FSB) published a letter from its Chair, Klaas Knot, to G20 Finance Ministers and Central Bank Governors, ahead of the G20 meeting on 28-29 February.

Highlights of the letter are as follows:

• FSB Chair warns of challenging outlook to global financial stability including debt servicing burdens, stretched asset valuations in some key markets, and leverage and liquidity mismatch in non-bank financial intermediation (NBFI).
• Chair submits FSB’s revised policy recommendations to address vulnerabilities arising from liquidity mismatch in OEFs and calls on G20 members to implement them as quickly as feasible.
• Letter outlines key issues the FSB is working on in 2024, including lessons from the March 2023 banking turmoil, NBFI, climate change, digitalisation and enhancing the efficiency of cross-border payments.

In his letter, he warns of the challenging outlook for global financial stability, despite steady economic growth and signs of easing global financial conditions. Debt service challenges could increase, and exposures to sectors facing existing headwinds, like commercial real estate, bear close monitoring. Asset valuations are also stretched in some key markets. Abrupt shifts in market pricing could expose vulnerabilities in the financial system, including those related to leverage and liquidity mismatch in NBFI.

The letter lays out the FSB’s work during 2024 to monitor and address financial system vulnerabilities.

The FSB also noted that it is working to ensure the effective implementation of the international framework provided by the FSB Key Attributes of Effective Resolution Regimes, address the financial stability risks stemming from leverage in NBFI, and analyze the financial stability implications of tokenisation and artificial intelligence. To address growing financial stability risks from cyber incidents, the FSB is designing a format for incident reporting exchange (FIRE) for public consultation.

Finally, the FSB notes that it continues to coordinate international work through the FSB Roadmap to address financial risks from climate change, the G20 Roadmap for enhancing cross-border payments and the G20 Roadmap on crypto-assets. At the request of the Brazilian G20 Presidency, the FSB will also deliver a stocktake on regulatory and supervisory initiatives related to the identification and assessment of nature-related financial risks to the G20 July meeting.

A copy of the release can be viewed here.

In response to the Basel Committee on Banking Supervision's discussion paper regarding digital fraud, World Council submitted a comment letter on behalf of the global credit union movement. The Committee's discussion paper requested comments a description of fraud and the transmission channel's into the banking system. It also requested comments on whether there are additional banking initiatives related to digital fraud that should be pursued by the Committee. 

Among suggestions for a more inclusive description of digital fraud impacting credit unions, World Council urged the Committee to explore the methods and ramifications in which the most vulnerable populations are targeted. Digital fraud is another challenge credit unions face in their mission for financial inclusion. World Council requested the Committee consider additional education initiatives related to fraud activity and resources.

Click here to read the comment letter submitted by World Council.  

World Council has submitted a comment letter on the Basel Committee's public consultation Disclosure of Cryptoasset Exposure. The consultative document proposes a standardized disclosure template that would be required for financial institutions, including credit unions, with cryptoasset exposure beginning in January 2025. The Committee proposed the templates to ensure market discipline and better transparency on risks associated with exposure.  

Similar to other areas of the Basel Framework, World Council requested that proportionality or a more streamlined ability to disclose also be included in the requirements and standard templates. If credit unions decide to explore or take-on cryptoasset exposure in the future it is important that the reporting requirements for community-based financial institutions not be overly burdensome to ensure they are not excluded from new opportunities. 

Click here to read World Council's comment letter.  

The Financial Stability Board (FSB) published its work programme for 2024. Priority areas of work and new initiatives, including deliverables to the Brazilian G20 Presidency, include:

• Supporting global cooperation on financial stability.The FSB continues to promote financial stability in a rapidly changing environment, in which vulnerabilities in the global financial system continue to be elevated, reflecting high interest rates and an uncertain growth outlook, while vulnerabilities from structural change continue to emerge in areas such as climate change, cyber, and crypto-asset markets.
• Completing resolution reforms. The FSB will continue its work to promote the full implementation of the Key Attributes of Effective Resolution Regimes for Financial Institutions across all sectors. The focus will be to address the lessons learned from the March 2023 banking turmoil, including work on deposit behaviour and the role of technology and social media; and on interest rate and liquidity risk in the financial system. In 2024, the FSB will also finalise its proposals for a set of resources and tools to support the resolution of a central counterparty(CCP) and publish the list of insurers subject to the resolution planning standards.
• Enhancing the resilience of NBFI.The FSB will continue to advance its work programme for enhancing NBFI resilience, which it is carrying out together with the standard-setting bodies and international organisations. This includes exploring policy recommendations or policy options for non-bank financial leverage; enhancing liquidity preparedness of non-bank market participants for margin and collateral calls; and conducting new work on the functioning and resilience of repo markets.
• Enhancing cross-border payments.The G20 roadmap for enhancing cross-border payments co-ordinated by the FSB, contains a comprehensive set of actions  and a framework for monitoring progress toward achieving the quantitative targets that have been set for end-2027. As part of this, in 2024, the FSB will issue recommendations to promote alignment and interoperability in data frameworks related to cross-border payments and develop recommendations to strengthen the consistency of regulation and supervision of banks and non-banks providing cross-border payment services.
• Harnessing the benefits of digital innovation while containing its risks. A key focus for 2024 and beyond is on ensuring the effective implementation of the agreed global regulatory and supervisory framework for crypto-asset activities and markets and for global stablecoin arrangements. The FSB will also complete work on the financial stability implications of tokenisation; prepare a report for the G20 on recent developments in AI and their potential implications for financial stability; and, in its efforts to enhance cyber resilience, design a format for incident reporting exchange(FIRE) to promote greater convergence in financial institutions’ reporting of incidents to financial authorities.
• Addressing financial risks from climate change.The FSB will continue to coordinate international work through its roadmap for addressing climate-related financial risks. Work this year will include analysis of the relevance of transition plans for financial stability and, for the G20, a stocktake of regulatory and supervisory initiatives related to the identification and assessment of nature-related financial risks. The FSB will also prepare a further progress report on achieving consistent climate-related financial disclosures.

A copy of the programme can be viewed here.

The World Council of Credit Unions took stock of the many issues that arose during 2023 and the role of International Advocacy in shaping regulations to grow and strengthen credit unions.  Notably, World Council notes advocacy victories in the following areas:

1. The G20 including proportionality in the Leaders’ Declaration on Sustainability Standards;
2. Presenting at the United Nations on the role of credit unions and cooperatives in advancing financial inclusion;
3. The inclusion of WOCCU advocated proportionality measures in the ISSB’s inaugural climate risk and sustainability disclosures;
4. The inclusion of the support of financial inclusion in the G20 Leaders’ Declaration (and the corollary role that credit unions can play in advancing financial inclusion); and
5. Various victories with the European Union on Basel III, payments, operational resilience, and others.

These advocacy victories directly result in the ability of the credit union cooperative model to be supported by appropriately tailored regulatory frameworks that enable credit unions to thrive.

World Council continues to be the only organization representing credit unions at the international standard setting level.  The involvement in these issues is informing World Council’s outlook on various issues that will receive attention in 2024 including, climate change, payments, cybersecurity, cryptocurrencies and others. 

World Council’s 2024 Outlook and 2023 Year-end Summary can be viewed here.

The Council and Parliament reached a provisional agreement on creating a new European authority for countering money laundering and terrorist financing (AMLA). The goal is to protect EU citizens and the EU’s financial system by boosting the efficiency of the current AML/CFT framework through an integrated mechanism with national supervisors to ensure certain entities comply with the AML/CFT obligations.

AMLA will have supervisory powers over high-risk obliged entities in the financial sector. It will also have a supporting role in non-financial sectors and coordinate with financial intelligence units in member states. The future location of the new agency’s seat is yet to be determined. AMLA will have the authority to supervise up to 40 groups and entities in its first selection of credit and financial institutions that represent a high risk in several member states. The selected obliged entities will be supervised by joint teams led by AMLA that will carry out assessments and inspections.

Additionally, the provisional agreement expands the scope of AMLA’s supervisory database by requesting the Authority establish and maintain a central database of information relevant for the AML/CFT supervisory system. AMLA will have a general board composed of representatives of supervisors and Financial Intelligence Units from all members states as well as an executive board.

Next, the provisional agreement will be presented to member states’ representatives and the European Parliament for approval.

Click here to read the full press release

World Council recently submitted a letter to the Financial Action Task Force (FATF) with comments regarding its Risk-Based Guidance on Beneficial Ownership (Recommendation 25). Recommendation 25 is additional guidance to help prevent the misuse of legal arrangements for money laundering or terrorist financing.

World Council expressed its support for strong anti-money laundering practices and the additional guidance to aid national-level implementation related to beneficial owners of certain accounts. However, World Council urged FATF to include stronger language ensuring individual countries create and maintain reliable registries for credit unions and other financial institutions to readily identify beneficial owners. World Council provided additional information regarding credit unions and the nature of their services. World Council's letter also requests clearer guidance to more specifically direct individual jurisdictions to take a proportional risk-based approach to establishing implementation requirements, specifically for credit unions.

Click here to read the full letter submitted by World Council.

WOCCU advocated proportionality was included in the Financial Stability Board’s (FSB) Toolkit for Enhancing Third-party Risk Management and Oversight.  The proportionality language makes it clear that many of the tools are unsuitable for smaller financial institutions and calls for the tailoring of the rules. 

This comes on the release by the FSB of the toolkit for financial authorities and financial institutions for their third-party risk management and oversight. The toolkit was developed in response to concerns over the extent and nature of financial institutions’ interactions with a broad and diverse ecosystem of third-party service providers, which could have implications for financial stability. Namely:

•  The toolkit was developed in response to concerns over the risks to financial institutions from outsourcing and third-party service relationships.
• The toolkit aims to strengthen financial institutions’ ability to manage third-party risks and financial authorities’ ability to monitor and strengthen the resilience of the financial system.
• The toolkit aims to reduce fragmentation in regulatory and supervisory approaches across jurisdictions and financial services sectors and to facilitate coordination among financial authorities, financial institutions, and third-party services providers.

WOCCU participated in various consultations by the FSB including commenting on the consultation paper back in 2022. 

A copy of the toolkit can be viewed here.

The Basel Committee on Banking Supervision issued a public consultation paper on a Pillar 3 disclosure framework for climate-related financial risks.

The Committee is analyzing how a Pillar 3 disclosure framework for climate-related financial risks would further its mandate to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability, and the potential design of such a framework. It is publishing this consultation paper to seek the views of stakeholders on its preliminary proposal for qualitative and quantitative Pillar 3 disclosure requirements that would complement the work of other standard setters, including the International Sustainability Standards Board (ISSB), and provide a common disclosure baseline for internationally active banks.

The Committee goal is to ensure the availability of accurate, consistent and useful climate-related data that can be used to facilitate forward-looking risk assessment by banks is available.  The Committee is taking a flexible approach on the future framework given the evolving nature of this data.  

The Committee is considering which elements would be mandatory and which subject to national discretion. More generally, the Committee notes that the development of a meaningful and robust Pillar 3 framework for climate-related financial risks is likely to be an iterative process.

A copy of the consultation can be viewed here.

In a recent newsletter the Basel Committee provided additional information regarding the status of implementation of the Principles for the effective management and supervision of climate-related financial risks (Principles) and current gaps.

The Committee’s Principles are seeking to improve the banks’ climate-related financial risk management and lower risks to the global banking system.

After reviewing the status of implementation and meeting with supervisors and stakeholders, the Committee identified key areas of focus for the future. Enhancing data availability and quality is a top priority as data limitations were identified as the main impediment for banks and supervisors to implement the Principles. The Committee believes financial institutions will need to invest in better tools and greater automation to capture climate data and minimize operational risks.

Building capabilities and expertise was also identified as a significant challenge and area of focus. The lack of professional experience and human capital continues to challenge the speed of implementation. The Committee is recommending financial institutions continue to build in-house expertise to support integrating and mitigating climate-related risks into their management practices.

Finally, applying climate scenario analysis will be a focus moving forward. Financial institutions reported running a range of different scenarios for different purposes, such as for strategic planning and risk management frameworks. However, the uses and methodologies vary across jurisdictions.

The Committee will continue to monitor implementation progress but it is clear that financial institutions will need to devote further resources to fully implement the Principles.

The Financial Stability Board (FSB) recently published a report on the financial stability implications of multifunction crypto-asset intermediaries (MCIs). MCIs are individual firms or groups of affiliated firms that provide crypto-asset services, products and functions usually around a trading platform. In many cases MCI vulnerabilities are similar to those of traditional finance. However, these vulnerabilities can be amplified by limited controls and operational transparency. MCI vulnerabilities could impact traditional financial systems through transmission channels.

FSB will be monitoring the development of MCIs and the crypto-asset sector as a whole to determine the financial stability implications on the broader economy. Comprehensive and consistent regulations to the crypto-asset market will be critical to minimizing the vulnerabilities and impact on the overall financial stability of the market.

Financial service regulators globally continue to look at the impact of diversity and inclusion within their own organization and credit unions. Regulators recognize the impact diversity and inclusion has on safety and soundness. Earlier this year, the Financial Conduct Authority (FCA) in the United Kingdom set out proposals to increase diversity and inclusion, reduce groupthink and maximize talent. The proposals noted that increase in diversity and inclusion in regulated financial services firms can produce better internal governance, decision making and risk management practices. The new rules and guidance identify that bullying and sexual harassment amongst other forms of misconduct pose a risk to a healthy firm culture.

The Central Bank of Ireland (CBI) has conducted regular reviews of large regulated financial service providers and their diversity and inclusion progress. CBI also noted the tie between diversity and inclusion and the safety and soundness of the financial service organizations. CBI continues to conduct thematic assessments of insurance and banking firms, specifically in terms of gender representation.

This month the National Credit Union Association (NCUA) wrapped up its annual Diversity, Equity and Inclusion summit with a special focus on the internal practices of credit unions in the United States and best practices related to diversity and inclusion.  NCUA also conducts an annual voluntary diversity and inclusion survey to assess the state of the industry.

Increasingly regulators are connecting the impact diversity and inclusion has in strong governance and risk management practices. Both the safety and soundness and financial inclusion mission of credit unions are impacted by its internal and external progress towards diversity and inclusion.

A few members of the United States Congress are requesting the U.S. Government Accountability Office (GAO) examine the role U.S. federal banking agencies played in the Basel III international capital standards. Financial Services Committee Chairman Patrick McHenry and Monetary Policy Subcommittee Chairman Andy Barr are criticizing the global regulatory capital requirements and related U.S. implementation proposals.

The committee chairmen are questioning the transparency of the Basel Committee on Banking Supervision (BCBS), how the international standards were developed, and the use of those standards in the creation of the U.S. proposed capital rules. Their request for a GAO review comes after the U.S. Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC), jointly proposed new rules which would require significant changes to the US regulatory capital regime for the largest US banks by July 2025.

As national level governments continue to review and implement Basel III standards, World Council in collaboration with its members, continue to encourage proportional and properly tailored standards for credit unions. Click here to read the joint letter from World Council and Credit Union National Association (CUNA) urging proportionality in the U.S. approach to Basel III for credit unions.

The Basel Committee on Banking Supervision met in October to evaluate recent market developments and risks to the global banking system. The Committee also discussed several policy and supervisory initiatives.

The Committee reviewed the outlook for the global banking system given the March 2023 banking turmoil and high interest rate environment. The banking challenges that occurred this Spring were the most significant system-wide stress on the banking industry since the Great Financial Crisis. The Committee reflected on the causes of the banking turmoil and the regulatory and supervisory lessons learned in its October 2023 report. Based on this report, which the Group of Governors and Heads of Supervision recently reaffirmed, the Committee will be pursuing several initiatives. These include:

• Prioritising work to strengthen the supervisory effectiveness and areas that need additional global guidance; and
• Pursuing additional follow-up analytical work to assess whether specific standards of the Basel Framework produced the intended result during the March 2023 banking turmoil (especially related to liquidity and interest rate risk).

In addition to reflecting on this year’s banking challenges and future adjustments, the Committee discussed both climate risks and cryptoasset exposure. The Committee agreed to consult on a Pillar 3 disclosure framework for bank exposures to climate-related financial risks. The Committee will be publishing a consultation paper on this topic by November. The Committee also agreed to consult on disclosure requirements regarding banks’ cryptoasset exposures. These new disclosures would complement the previous standards issued by the Committee in December 2022. The consultation paper on cryptoassets is expected soon.

Finally, members of the Committee also discussed how advances in digitalisation and financial technology are impacting the financial system. Trends discussed included the provision of banking services through non-bank intermediaries (“Banking as a Service”). The Committee expects to publish a report in 2024 on developments in digitalisation of finance and their implications for banks and supervisors.

The Financial Stability Board (FSB) has published its annual progress report on climate-related disclosures. The report indicates further development regarding climate disclosures over the last year. International regulatory bodies are focused on creating comparable public disclosures of climate-related financial risks to use in the analysis of vulnerabilities in the financial system.

In the report, the FSB welcomed the International Sustainability Board (ISSB) disclosure standards and plans to work with other relevant bodies to promote them. The ISSB standards will serve as a framework for different companies across the globe to provide climate related disclosures consistently. Implementation and the applicability of ISSB standards with individual jurisdictional disclosure frameworks is valuable to regulatory bodies to compare climate-related disclosures from companies in different countries.

Additionally, the International Auditing and Assurance Standards Board (IAASB) and International Ethics Standards Board for Accountants (IESBA) are making significant progress in their efforts to produce a global set of assurance, ethics, and independence standards. This set of standards is intended to improve the quality and reliability of sustainability-related information through third-party assurance. Compliance and enforcement of these standards could deter “greenwashing”.

Also of note, the Task Force on Climate-related Financial Disclosures (TCFD) released its final status report and will be disbanded now that it has completed its final initiative. TCFD was created by the FSB and made up of industry representatives. It created a set of voluntary disclosure recommendations for use by companies to provide information to investors, lenders, and insurance underwriters about their climate-related financial risks.

The report indicates that progress continues as all FSB jurisdictions either have requirements, guidance, or proposals pending related to climate disclosures.

World Council continues to advocate for proportionality where appropriate and monitor developing disclosure requirements closely. Click here to access the FSB press release and related reports.

The European Commission has proposed giving small and medium enterprises (SMEs) the ability to interact with a single Head Office tax authority. The Commission is making this proposal to alleviate the complexity and compliance costs of cross border operations when operating with a permanent establishment in more than one member state. SMEs would have the opportunity to calculate their tax liability based only on the tax rules of the Member State allowing them to file one tax return. 

The proposal contains detailed provisions to streamline the tax process and allow small businesses to grow and develop. If an SME meets the proposed criteria businesses will have the choice to file under a single Head Office and will remain under that same Head Office system for five years. 

Further details of the streamlined tax option as part of a larger SME Relief Package can be found in the full text of the proposal.

World Council submitted a comment letter last week on the Basel Committee’s proposed updates to the Core Principles for Effective Banking Supervision (Core Principles). The Core Principles are global standards for prudential regulation and supervision. Supervisory authorities across the globe use the Core Principles as a benchmark for evaluating the effectiveness of their regulatory and supervisory frameworks. This is the first formal update to the Core Principles since 2012.

In the comment letter, World Council strongly urged the Basel Committee to include more direct language concerning proportionality and communication with national level supervisory authorities. We also highlighted the ongoing challenges of accessing quality correspondent banking services and the disproportionate burden recent guidance on operational resilience, climate, digitization and stress testing will have on credit unions.

World Council has long advocated for clearer language regarding proportional implementation of international standards. It is critical that laws and regulations designed to address the largest international banks posing the greatest risks to the financial markets are appropriately tailored for credit unions serving their local community. While the World Council requested several additions and adjustments to the Core Principles, we are pleased that the Basel Committee’s proposed revisions include several updates favorable to credit unions recognizing proportionality.  

A copy of the letter can be viewed here.  

The Group of Central Bank Governors and Heads of Supervision (GHOS), which oversees the Basel Committee on Banking Supervision, met in September to discuss lessons learned from recent banking challenges and review the implementation status of outstanding Basel III standards.

The Spring’s individual bank failures and turmoil resulted in Basel Committee initiatives such as strengthening supervisory effectiveness, pursuing additional analytical work, and assessing the need to explore policy options. GHOS endorsed Basel Committee’s response to the events this Spring.  

The GHOS will be publishing the Basel Committee’s regulatory and supervisory lessons learned from the recent stress in the financial services industry. They include:

• The banks’ risk management practice and governance arrangements are the most important foundation to operational resilience.
• Strong supervision plays a vital role in overseeing the safety and soundness of banks. Effective supervision must act early to identify weaknesses in bank practices.
• The importance of a prudent regulatory framework in safeguarding financial stability.

The GHOS is supporting a series of follow up initiatives. They include strengthening supervisory effectiveness and identifying issues that could merit additional guidance at a global level and follow-up analytical work to determine if components of the Basel Framework are performing as intended.

The GHOS noted that members continue to make progress in implementing the Basel III reforms, which were finalized 2017.  All remaining jurisdictions and standards of Basel III are expected to be implemented by the end of 2025.

Additional information can be found here.

The Financial Stability Board (FSB) published its stocktake of international data standards relevant to cross-border payments. The stocktake looks at national and regional data frameworks relevant to the functioning, regulation and supervision of cross-border payment arrangements. It takes forward one of the priority actions under the G20 Cross-border Payments Roadmap, to enhance the interaction between data frameworks and cross-border payments. The report:

• Identifies frictions that pose challenges to improving the cost, speed, transparency and access of cross-border payments;
• Highlights fragmentation in data frameworks as a main contributor to increased cost and inability to automate cross-border payments;
• Notes that by early 2024, the FSB will develop recommendations, for public consultation, for promoting alignment and interoperability across data frameworks applicable to cross-border payments.

The stocktake was conducted to identify issues relating to cross-border use of data by national authorities and by the private sector in cross-border payment arrangements. The report identifies a number of frictions from data frameworks that pose significant challenges to improving the cost, speed, transparency and access of cross-border payments. These include uncertainty among payment providers on how to balance the various obligations under different data frameworks, such as obligations related to data privacy and to anti-money laundering and combating the financing of terrorism (AML/CFT); and challenges arising from restrictions on the flow of data across borders, which could make it more difficult to identify fraud, comply with AML/CFT and other regulatory obligations, as well as manage risk on an enterprise-wide basis. A certain degree of friction from data frameworks may be an unavoidable and acceptable consequence of regulations aimed at preserving the security of transactions, meeting AML/CFT objectives and protecting the privacy of citizens. However, the extent of fragmentation in data frameworks across jurisdictions was considered a main contributor to increased cost and inability to automate payments.

Work is already underway in the FSB to follow-up on this stocktake and address these issues. In particular, the FSB is developing recommendations to promote alignment and interoperability across data frameworks applicable to cross-border payments. To inform its work, the FSB will engage with industry, data privacy experts, financial regulators and data protection agencies to develop case studies to assess the impact of selected frictions on cross-border payments and identify where action should be prioritised.

The Financial Stability Board (FSB) today published two letters from its Chair, Klaas Knot, to G20 Leaders ahead of their Summit in New Delhi on 9-10 September, noting the following key points:

• FSB Chair warns that the higher interest rates that have been necessary to address inflation, alongside a slowing growth outlook, could impair the capacity of borrowers to service historically high levels of debt.
• Work to address financial stability risks associated with leverage in the non-bank financial intermediation (NBFI) sector will be a major focus of FSB policy work in 2024.
• A separate letter calls for continued support from Leaders as work to enhance cross-border payments shifts towards implementing practical projects in partnership with the private sector.

The first letter outlines the work the FSB has undertaken under the Leadership of India’s G20 Presidency to address existing vulnerabilities in the financial system and enhance the resilience of the financial system to structural change.

The letter notes the challenging backdrop of strong and persistent inflation and slowing growth, and warns that rising interest rates could impair the capacity of borrowers to service the historically high stock of global debt. He calls on authorities to closely monitor asset quality in those sectors most sensitive to higher interest rates, such as real estate. The letter highlights concerns over the build-up of leverage in the NBFI sector, described in a report being delivered to the Summit, and notes that addressing these risks will be a major focus of NBFI policy work next year.

The March banking-sector turmoil constituted a test of the financial reforms put in place following the 2008 crisis. It exposed vulnerabilities in individual institutions relating to poor liquidity and interest rate risk management and governance, and reinforced the need for strong and effective supervision and The FSB and the Basel Committee on Banking Supervision (BCBS) are examining the implications of these issues to identify lessons and adjust policy frameworks where needed. The FSB remains convinced that the international resolution framework developed by the FSB in the aftermath of the 2008 Global Financial Crisis is fit for purpose, but we have identified a number of implementation challenges that need to be addressed. To this end, the FSB will soon publish a report on preliminary lessons learned for resolution and policy priorities going forward.

The letter outlines the FSB’s work to address the financial stability implications of two secular trends – digitalisation and climate change. In response to the former, the FSB delivered to the G20 in July a set of recommendations for the regulation, supervision and oversight both of crypto-assets and markets and of global stablecoin arrangements. The FSB is now working with standard-setting bodies and international organisations to ensure that these recommendations are implemented globally. Recognising that crypto-assets raise both financial stability and macroeconomic risks, the FSB and IMF are delivering to the Summit a Synthesis Paper that brings together the risks identified by each institution and how they interact. The paper also includes a roadmap for future work.

Accelerating digitalisation across the financial system has improved efficiencies but also raised operational resilience challenges. For instance, the interconnectedness of the global financial system makes it possible that an incident at one financial institution, or at one of its third-party service providers, could have spill-over effects across borders and sectors. To address these risks the FSB issued in April recommendations to achieve greater convergence in cyber incident reporting frameworks. The FSB has also consulted on a policy toolkit that financial institutions and financial authorities can use to enhance their third-party risk management and oversight. The toolkit will be finalised in December.

In response to climate risks, the FSB is coordinating closely with standard-setting bodies and international organisations to implement the four building blocks of its Roadmap on Climate-related Financial Risks. An important milestone has been the publication of the International Sustainability Standards Board (ISSB)’s disclosure standards, which have been endorsed by the International Organization of Securities Commissions (IOSCO). The ISSB standards will strengthen the comparability, consistency and decision-usefulness of climate-related financial disclosures around the world. These standards can be seen as a culmination of the work of the FSB’s Task Force on Climate-related Financial Disclosures (TCFD), which has made a major global contribution since its creation in 2015.

A second letter provides to G20 Leaders an update on the G20 Cross-border Payments Roadmap. The first phase – the initial set of actions set out in the 2020 Roadmap – has now largely been completed. This year, in the second phase, the authorities and standard setters have focused their efforts on concrete projects that will make a difference across various parts of the cross-border landscape and on developing further the partnership with the private sector to work to achieve the Roadmap goals. The letter underscores the need for continued further political support and sustained effort by the public and private sectors in order to meet the G20 targets by 2027 to make cross-border payments cheaper, faster, more inclusive and more transparent. Leadership from the G20 has energised the public and private sectors and provided the political impetus, without which change will not happen.

A copy of the press release can be viewed here.