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Financial Stability Board Addresses G20 Regarding Covid-19, Too-Big-To-Fail and Climate Change

In anticipation of the April 7th meeting with the G20, on April 6, 2021, the Financial Stability Board (FSB) published a letter from Chair, Randall K. Charles entitled, To G20 Finance Ministers and Central Bank Governors. The letter discusses Covid-19 support ramifications, FSB's support of the progress made on Too-Big-To-Fail (TBTF) reforms for banks, and emphasizes the importance of focusing on climate change issues as they relate to financial services.

The letter includes mention of the report the FSB and delivered to the G20 on April 6, entitled, COVID-19 support measures Extending, amending and ending. Notably, the report states that “withdrawal of support measures before the macroeconomic outlook has stabilised could be associated with significant immediate risks to financial stability.” The FSB, however, maintains that support measures could exist past the point of being helpful and that financial stability risks will start to grow; but admittedly, the FSB acknowledges that “most authorities currently believe that the costs of premature withdrawal of support could be more significant than maintaining support for too long”, and that flexibility and a “state-contingent approach” could minimize risks.

The letter goes on to endorse TBTF reforms but highlights vulnerabilities within non-bank financial intermediation or NBFI (insurance firms, venture capitalists, currency exchanges, some microloan organizations, and pawn shops); and lastly, discusses sustainable finance and climate change issues. FSB deliverables to the G20 (due in July) include two reports “on ways to promote consistent, high-quality climate disclosures in line with the recommendations of the Task Force for Climate-related Financial Disclosures; and on the data necessary for the assessment of financial stability risks and related data gaps.” The FSB will also present a roadmap to the G20 on climate-related financial risk, and coordinate with the G20 in developing their sustainable finance roadmap.

More information on the FSB’s letter, To G20 Finance Ministers and Central Bank Govenors; and report on COVID-19 Support Measures Extending, Amending an Ending, can be viewed here.

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Financial Stability Board

Basel Oversight Group Discuss Global initiatives on Non-Bank Financial Intermediation

On March 31, 2021, the Basel Committee on Banking Supervision’s oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS), met to endorse the Basel Committee’s 2021-22 work programme and strategic priorities. The work programme “places high priority on the implementation and evaluation of previously agreed reforms, on assessing emerging risks and vulnerabilities, and increasing supervisory cooperation.” Part of that endorsement included and discussion surrounding global initiatives for non-bank financial intermediation (NBFI).

Regulators are taking notice that NBFI has a substantial impact on the market: banks and non-banks (such as like insurance companies, pension funds, investment funds, etc) are “interconnected through multiple channels”, and non-banks take up nearly half of the “global financial system”. Following the Financial Stability Board’s lead on tackling NBFI initiatives, the GHOS suggest taking a “holistic approach” when addressing areas needed to improve NBFI resilience.

More information on the GHOS meeting can be viewed here.

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Basel

Financial Stability Board Publishes Evaluation of Too Big to Fail Reforms for Systemically Important Banks

On March 31, 2021, the Financial Stability Board (FSB) published its final report entitled, Evaluation of the Effects of Too-Big-To-Fail Reforms, focusing their attention mainly on systemically important banks (SIBs). The objective of the evaluation is to examine “the extent to which the reforms have reduced the systemic and moral hazard risks associated with SIBs, as well as their broader effects on the financial system.”

While the report included mention of non-bank institutions, it largely focused on SIB reforms and how non-bank institutions function in proximity to them, stating that: “As SIBs face more stringent requirements, other banks and non-bank financial institutions would pick up market share and improve profitability relative to SIBs.”

The report goes on to articulate that “other intermediaries” including both banks and non-banks have contributed more than global systemically important banks to growth in the ratio of credit to GDP and hypothesized that “additional impact of the TBTF reforms on G-SIBs could have left space for growth by other intermediaries”; and that non-bank financial intermediation (NBFI) has substantial growth in total assets after the TBTF reforms. However, credit unions typically remain stable during economic hardship with no bearing on whether SIBs perform satisfactorily. The report waivers on its opinion of non-bank institutions and hypothesizes that more diversity within the financial system could support financial stability, but then conjectures that “a shift of credit provision activities to non-bank financial intermediaries could raise financial stability concerns.” Ultimately, the FSB concedes that the implications of non-bank institutions have not been fully evaluated and that they will work to address financial stability risks. World Council agrees and urges the FSB to study the impact of the “Too-Big-To-Fail” reforms on smaller financial institutions.  

FSB voiced the need to improve the resiliency of NBFI, asserting that “the events of March 2020 suggested that some parts of the NBFI system acted as propagators rather than mitigants of the stress.”  What the FSB should consider is that smaller, not-for-profit cooperative institutions such as credit unions, are more stable during times of economic hardship.  This is due to their not-for-profit status and ability to provide necessary services to the underserved community typically forgotten or ignored by SIBs. Credit unions provide a direct benefit to the financial market and should be given some deference as to the needs of these institutions by providing proportional reforms so that they can continue to thrive and contribute to market buoyancy.

More information on the final report can be viewed here and here.

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Financial Stability Board

World Council Advocated Proportionality Included in Basel Operational Resilience Guidance

The Basel Committee on Banking Supervision issued two guidance documents concerning Operational Resilience including the Principles of Operational Resilience and  Revisions to the Principles for the Sound Management of Operational Risk.  Both documents take a principled approach which allows for a risk-based and proportional application to any requirements implemented. 

Specifically, the Principles of Operational Resilience state “By building upon existing guidance and current practices, the Committee is issuing a principles-based approach to operational resilience that will help to ensure proportional implementation across banks of various size, complexity and geographical location.”

Further, the Principles for Sound Management of Operational Risk states “Thus, the review of the Principles is also the opportunity to stress that this model should be adequately and proportionally used by financial institutions to manage every kind of operational risk subcategory, including ICT risk” (emphasis added).

World Council advocated for the inclusion of this emphasis on proportionality in its comment letters to the Basel Committee filed during their consultation period (here and here).  WOCCU applauds the Basel Committee on this principles based and proportional approach which will help increase credit unions’ capacity to withstand disruptions due to severe events, but in a manner commensurate with their size, risk, and complexity.

A copy of the Principles of Operational Resilience can be viewed here; and the Principles for Sound Management of Operational Risk can be viewed here.

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Basel

IASB Extends Application Period of Practical Expedient in IFRS 16 Leases

In response to stakeholders and in light of the continuing Covid-19 pandemic, on March 31, 2021, the International Accounting Standards Board (Board) prolonged aid to lessees accounting for Covid-19-related rent concessions by extending, for one year, the application period of the practical expedient in IFRS 16 Leases.

The amendment was implemented to alleviate lessees accounting of Covid-19 related rent concessions, “such as rent holidays and temporary rent reductions, while continuing to provide useful information about their leases to investors.” The amendment, which was originally issued in May 2021, will now apply to rent concessions reducing lease payments due on or before June 30, 2022.

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International Accounting Standards Board

Financial Conduct Authority Publishes Feedback on Open Finance

In December of 2019, the FCA published a Call for Input, to “explore the opportunities and risks arising from open finance”, and have now published a Feedback Statement to summarize the responses they received. Some of the feedback highlighted that:

  • Open finance could be a significant undertaking for firms. This is particularly important given the change in operating environment as a result of Covid-19 and its ongoing impact. 
  • The implementation of open finance should be proportionate, phased and driven by consideration of how consumers will use and interact with it. 
  • There is a degree of consensus around the key building blocks needed for open finance to develop in the interests of consumers. These include a legislative and regulatory framework, common standards and an implementation entity. 

The feedback also showed that “open finance could potentially offer significant benefits to consumers, including increased competition, improved advice and improved access to a wider and more innovative range of financial products and services." It could, however, also generate or increase existing risks, therefore fostering questions surrounding data ethics which will require additional regulation to manage risk and boost consumer confidence.

More information on the FCA’s Call for Input on open finance can be found here.

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Financial Conduct Authority

EU Council Adopts Conclusions on Retail Payments Strategy

On March 22, 2021, the European Council adopted conclusions on the retail payments strategy for the EU presented by the European Commission in efforts to develop the retail payments market in the EU; and “make it easier for consumers to pay in shops, and to make e-commerce transactions widely available, convenient and safe across the EU”. Improving instant payments and innovation in retail payments, as well as creating EU-wide payment solutions to decrease outside dependency are key objectives the Council hopes to address.

The Council conclusions on the Commission Communication on a ‘Retail Payments Strategy for the European Union’, details priorities under four ‘pillars’ for strategic action:

  • addressing issues related to increasingly digital and instant payment solutions
  • innovation and competitiveness issues
  • ensuring access to and interoperability of retail payment systems and other support infrastructures
  • improving payments with countries outside the EU

The Council also acknowledged challenges to addressing market regulation and development as it pertains to financial inclusion, security and consumer protection, data protection and anti‑money laundering aspects. 

More information on the Council's adopted conclusions on retail payments strategy can be found here.

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on a Retail Payments Strategy for the EU, can be found here.  

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Council of the European Union

EU Council Adopts Conclusions on Cybersecurity Strategy

On March 22, 2021, the European Council adopted conclusions on the European cybersecurity strategy in their Draft Council conclusions on the EU’s Cybersecurity Strategy for the Digital Decade, which was presented by the European Commission. The Council’s aim is to create a framework that will: protect citizens and businesses from cyber threats, secure information systems and cyberspace, create strategic autonomy and an open economy, all of which will conceivably establish “a resilient, green and digital Europe.” Further, the Council urges the Commission and the High Representative to institute a detailed implementation plan.

Some of the Council’s action items include:

  • the plans to create a network of security operation centres across the EU to monitor and anticipate signals of attacks on networks
  • the definition of a joint cyber unit which would provide clear focus to the EU's cybersecurity crisis management framework
  • its strong commitment to applying and swiftly completing the implementation of the EU 5G toolbox measures and to continuing efforts made to guarantee the security of 5G networks and the development of future network generations
  • the need for a joint effort to accelerate the uptake of key internet security standards, as they are instrumental to increase the overall level of security and openness of the global internet while increasing the competitiveness of the EU industry
  • the need to support the development of strong encryption as a means of protecting fundamental rights and digital security, while at the same time ensuring the ability of law enforcement and judicial authorities to exercise their powers both online and offline
  • increasing the effectiveness and the efficiency of the cyber diplomacy toolbox giving special attention to preventing and countering cyberattacks with systemic effects that might affect supply chains, critical infrastructure and essential services, democratic institutions and processes and undermine economic security
  • the proposal on the possible establishment of a cyber intelligence working group to strengthen EU INTCEN's dedicated capacity in this domain
  • the importance of strengthening cooperation with international organisations and partner countries in order to advance the shared understanding of the cyber threat landscape
  • the proposal to develop an EU external cyber capacity building agenda to increase cyber resilience and capacities worldwide

More information on the Council's adopted conclusions on cybersecurity can be found here.

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Council of the European Union

WOCCU Applauds FATF’s Risk-Based/Proportional Approach in Guidance for AML/CFT Supervision

On March 4, 2021, the Financial Action Task Force published its Guidance for Applying a Risk-Based Approach to AML/CFT Supervision. According to FATF, the Guidance helps supervisors address a broad range of risks while using resources to tackle higher risk areas; and notable for World Council is that an objective of the Guidance is to create a risk-based approach that supports financial inclusion by creating a regulatory environment that is “less burdensome on lower risk sectors or activities”. The Guidance further includes proportionality language throughout the document and advises that, “Supervisors should also consider transparency, consistency and proportionality in applying remedial actions or sanctions…”

The guidance is comprised of three parts:

  • “Part 1 – The high-level guidance on risk-based supervision, which explains how supervisors should assess the risks their supervised sectors face and prioritise their activities, in line with the FATF Standards’ risk-based approach.
  • Part 2 – Strategies to address common challenges in risk-based supervision & jurisdictional examples, including examples of strategies for supervising non-financial businesses and professions and virtual asset service providers.
  • Part 3 – Country examples from across the global network, of supervision of the financial sector, virtual asset service providers and other private sector entities.”

World Council commends FATF’s risk-based and proportionate approach to AML/CFT Supervision and looks forward to FATF’s continued efforts to improve financial inclusion.

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FATF

FATF President Supports Financial Inclusion at G20 Central Bank Governors and Finance Ministers Meeting

Financial Action Task Force President, Marcus Pleyer, spoke at the G20 Finance Ministers and Central Bank Governors Meeting on February 26, 2021. The FATF President commended the Italian G20 Presidency on their priorities regarding digitalization, and “people, planet and prosperity”; as well as their objective for “a resilient, inclusive and sustainable recovery”. The FATF President ensured that, “FATF stands ready to help [protect] our economies from illicit funds”, and made a commitment to contribute to financial inclusion, digitalization in financial services, and the G20’s Roadmap for Enhancing Cross-Border Payment.

President Pleyer highlighted three of FATF’s achievements in digitalization and assured that FATF will continue to align these achievements with the G20 Presidency’s objectives. They include:

  • FATF’s guidance on digital ID as an “important resource for ensuring access to essential and secure financial services- especially during the pandemic.”
  • FATF’s “adopted standards on virtual assets and stablecoins as the first international standard setter and the launch of a second review of the global implementation of these standards.” An update to the G20 will be provided during the year.
  • FATF currently analyzing “the opportunities and challenges of digital transformation for anti-money laundering”, with an offer to share insights from their work on data protection, privacy and responsible innovation.

The FATF President also expressed FATF’s commitment “to support the G20 through work on environmental and climate crime, such as illegal deforestation and illegal wildlife trade”; and “ensuring transparency of beneficial ownership is critical for everything from a fair tax system to stopping money laundering.” Notably, FATF’s President implored the G20 to implement FATF standards to combat illicit financial flow.

President Pleyer’s full speech can be found here.

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FATF

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 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

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

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