FSI Addresses Role of Climate Related Prudential Policy

A recent speech by Fernando Restoy, Chairman, Financial Stability Institute, Bank for International Settlements addressed the role of prudential policy as it relates to climate change.

Restoy noted that banks are exposed to climate change through two different sets of climate risk drivers:  1.  Through physical risks resulting from the increasing frequency of extreme weather events; and 2. Transactional risk resulting from disruption from the cumulative effects of changes in government policies and in technology and consumer and investor behavior which in turn can erode the value of banks’ credit exposures on the corresponding collateral.  

He notes that the physical and transition risks manifest themselves in the form of credit, market and liquidity risks. In addition, climate-related developments can increase operational risk by affecting business continuity and by giving rise to litigation and reputational losses.

Restoy concludes that the role of prudential regulators is to thoroughly analyze the financial impact of climate change on safety and soundness and to make adjustments to protect the stability of the financial system.  The key will be achieving the right balance between disclosure obligations, supervisory action, and the adjustment of capital requirements if appropriate.

A transcript of the entire speech can be viewed here.

Bank of International Settlements

BIS Reports on How COVID-19 Policy Measures Supported Lending

The Bank of International Settlements recently released a report entitled "Covid-19 Policy Measures to Support Bank Lending to review policies designed to support lending.   The report noted that in the wake of the Covid-19 fallout, policymakers enacted a wide range of measures to support the flow of credit. Some measures strengthened banks' lending capacity by preserving their capital and encouraging flexibility in loss accounting. Others, such as state-backed loan guarantees or funding for lending programmes, incentivized banks to use their available capacity.  It found that both types of measures contributed to lending growth.  In particular, the report contained the following key takeaways:

  • Since the start of the Covid-19 pandemic, policy measures have supported lending by enhancing banks' balance sheet capacity and creating incentives for banks to use this capacity.
  • Strong balance sheets allowed banks to accommodate credit line drawdowns at the start of the pandemic, while subsequent policy measures supported further lending.
  • Small and medium-sized enterprises, particularly those in sectors hard hit by the pandemic, expanded their borrowing by more in countries with more generous guarantee programmes.
A copy of the report can be viewed here.
Bank of International Settlements

Bank for International Settlements Releases Annual Economic Report

On June 29, 2021, the Bank for International Settlements (BIS) released its  Annual Economic Report at the Annual General Meeting. The report includes several topics including:

  • Pandexit: how “recovery will be uneven and the long-term consequences material”.
  • Challenges as a result of COVID-19 pandemic including but not limited to: upside and downside risks; diverging economic conditions and tensions between fiscal and monetary policy; lack of policy support in emerging market economies (EMEs).
  • The distributional footprint of monetary policy: how to combat economic inequity, which BIS argues are “outside the reach of monetary policy, and is best addressed by fiscal and structural policies.”
  • Central bank digital currencies (CBDCs): an opportunity for the monetary system.

More information on the BIS’ Annual Economic Report is available here.

Bank of International Settlements

Bank of Italy Governor Speaks on Financial Inclusion in Closing Address to 2021 IIF G20 Conference

On June 17, 2021, Ignazio Visco, the Governor of the Bank of Italy gave a keynote address to the 2021 IIF G20 Conference- The G20 Agenda Under the Italian Presidency. In his address, Mr. Visco covered topics regarding COVID-19 and the global economy, financial regulation, and financial inclusion and international digital cooperation.

Visco highlighted that the concerns that existed before the pandemic are more pronounced today, such as the increased use of digitalization. He noted that in coordination with major international organizations, the G20 Finance Ministers and Central Bank Governors updated their Action Plan to continue to continue the effectiveness of economic policy responses and conceded the“…need to closely monitor the increasingly divergent recovery paths – which may well entail an asynchronous unwinding of monetary and fiscal support measures – and take international policy spillovers into account.”

The Governor also emphasized the need to address vulnerabilities in the non-bank financial intermediation (NBFI) sector, especially in the areas of Money Market Funds. Visco also discussed financial regulation concerns surrounding mitigation of climate-related financial risks. “The G20 Finance Track aims to encourage a better alignment of both public and private financial commitments with the objectives of the 2015 Paris Agreement.”

Most notably, Visco addressed how digitalization has a direct impact on financial inclusion. He warned that while digitalization may build access, it could also “lead to new forms of exclusion” including indebtedness. “The outcome will depend, crucially, on the development and accessibility of digital infrastructures, the degree of financial and digital literacy, and the adequacy of governance, especially in the fields of regulation and supervision.” Some of the solutions Visco prescribed include: fostering more innovative regulatory and supervisory approaches; development of cross-border payments to make them cheaper, faster, more transparent and inclusive; and coordination with the Financial Stability Boards’ recommendations to address challenges related to global stablecoins for regulation, supervision, and payment-system oversight.

Governor Ignazio Visco’s full speech is available here.

Bank of International Settlements, G20

Bank for International Settlements Releases Executive Summary on Cyber Resilience Practices

The Bank for International Settlements (BIS) published their Cyber resilience practices – Executive Summary, with the aim of strengthening cyber resilience within financial firms. Citing the Financial Stability Board’s (FSB) definition, cyber resilience consists of "the ability of an organisation to continue to carry out its mission by anticipating and adapting to cyber threats and other relevant changes in the environment and by withstanding, containing and rapidly recovering from cyber incidents."  

The Executive Summary covers the following topics:

  • Regulation and supervision
  • Cyber incident response and recovery
  • Third party discrepancies
  • Information-sharing arrangements
  • Cyber resilience metrics

Additional information on the Executive Summary is available here.

Bank of International Settlements

Network for Greening the Financial System Works to Meet 2015 Paris Agreement Goals

In an effort to meet goals for the 2015 Paris Agreement, The Network for Greening the Financial System (NGFS) released a summary of their May 2020, Guide for Supervisors – Integrating climate-related and environmental risks into prudential supervision. The Climate and environmental risks - guide for supervisors - Executive Summary, summarizes the five key recommendations to “provide authorities with a roadmap to integrate climate-related and environmental risks in supervisory frameworks”.

The recommendations include:

Image via: Bank for International Settlements website:

A detailed summary of each recommendation is available here.

Bank of International Settlements

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.

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.
Bank of International Settlements

BIS Issues Report on Central Bank Digital Currency

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

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

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

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

A copy of the report can be viewed here.

Bank of International Settlements

FSI Reports on COVID-19 Supervisory Challenges

The Financial Stability Institute(FSI) of the Bank for International Settlements (BIS) issued its report on the prudential response to debt under COVID-19:  the supervisory challenges.  The highlights of the report are as follows:

  • In response to the Covid-19 pandemic, governments and banks have introduced public guarantees and payment deferrals to support struggling borrowers, while the Basel Committee on Banking Supervision (BCBS) and national authorities have provided guidance on how these relief measures should be considered in assessing credit risk in prudential frameworks.
  • The regulatory relief measures introduced by the BCBS provide banks with flexibility in supporting the real economy. But they also raise supervisory challenges that become more pronounced the longer the relief measures remain in place, particularly if credit risks continue to mount on bank balance sheets.
  • The greatest challenge for all prudential authorities is to decide how and when to exit from these regulatory relief measures. Acting too early may remove much needed credit to support economic growth, while waiting too long could undermine confidence in the post-crisis regulatory regime and heighten systemic risks. Making the right calls at the right time will require judgment.
A copy of the report can be viewed here.
Bank of International Settlements

FSI Brief Outlines Implications of COVID-19 Payment Holidays

The Financial Stability Institute of the Bank for International Settlements issued its report on payment holidays in the age of Covid: implications for loan valuations, market trust and financial stability. Highlights of the report are as follows: 
  • Governments and banks have introduced payment deferral programmes to support borrowers affected by Covid-19. But deferred payments are not forgiven and must be repaid in the future, raising prospective risks to the banking system. Thus, they should be designed to balance near-term economic relief benefits with longer-term financial stability considerations.
  • The Basel Committee on Banking Supervision (BCBS) and several prudential authorities have issued statements clarifying how payment deferrals should be considered in assessing credit risk under applicable accounting frameworks. These measures aim to encourage banks to continue lending, to avert an even deeper recession.
  • Prudential authorities are caught "between a rock and a hard place" as they encourage banks - through various relief measures - to provide credit to solvent, but cash-strapped borrowers, while keeping in mind the longer-term implications of these measures for the health of banks and national banking systems.
  • In navigating these tensions, banks and supervisors face a daunting task as borrowers that may be granted payment holidays have varying risk profiles. Distinguishing between illiquid and insolvent borrowers - amidst an uncertain outlook - should help guide banks' efforts to support viable borrowers, while preserving the integrity of their reported financial metrics.
A copy of the report can be viewed here.
Bank of International Settlements

BIS Issues Report on Central Bank's COVID-19 Responses

The Bank of International Settlements (BIS) Issued a report on the central banks' response to the COVID-19 in advanced economies.

Key takeaways from the report area as follows:

  • Central banks in advanced economies reacted swiftly and forcefully to the Covid-19 pandemic, deploying the full range of crisis tools within weeks. The initial response focused primarily on easing financial stress and ensuring a smooth flow of credit to the private non-financial sector;
  • The pandemic triggered complementary responses from monetary and fiscal authorities. Fiscal backstops and loan guarantees supported central bank actions. Asset purchases, designed to achieve central banks’ objectives, helped contain the costs of fiscal expansions; and
  • The footprint of central banks’ measures will be sizeable. Across the five largest advanced economies, balance sheets are projected to grow on average by 15–23% of GDP before end2020 and to remain large in the near future.
A copy of the report can be viewed here.

Bank of International Settlements

FSI focuses on Financial Crimes for COVID-19

The Financial Stability Institute of the Bank for International Settlements issued FSI Brief No. 7 that focuses on Financial Crimes in times of COVID-19 and the corresponding issues of AML and cyber resilience measures.  The key findings of the brief are as follows:  
  • Criminals are exploiting vulnerabilities opened up by the Covid-19 lockdown, increasing the risks of cyber attacks, money laundering (ML) and terrorist financing (TF).
  • Authorities worldwide have responded by drawing financial institutions' attention to these threats and by providing guidance on ways to improve cyber security and mitigate ML and TF risks.
  • Financial authorities are warning financial institutions to be particularly watchful in relation to their IT networks and non-public data; third-party risk; and cyber security incident response plans; and to focus additional effort on staff training and awareness.
  •  Financial authorities also emphasise the need for financial institutions to be vigilant of new ML and TF risks and to continue meeting anti-money laundering (AML) and combating the financing of terrorism (CFT) requirements, while using the flexibility built into the AML/CFT risk-based framework, digital customer on-boarding and simplified due diligence processes.
  • In both areas, the official guidance underscores the trade-offs between expecting financial institutions to enhance or adjust their cyber resilience and AML frameworks and, on the other hand, avoiding imposing an excessive burden that could hinder financial institutions in delivering key financial services.
A copy of the brief can be viewed here.
Bank of International Settlements

5th FSI COVID-19 Brief Issued on Government Guarantee Programs

The Financial Stability Institute of the Bank for International Settlements issued its 5th Brief on Public guarantees for bank lending in response to the Covid-19 pandemic.  Highlights of the brief are as follows:
  • In response to the Covid-19 pandemic, governments have launched guarantee programmes to support bank lending to companies, especially small and medium-sized enterprises. This is essential to avoid a sharp contraction in bank credit that would exacerbate the pandemic's adverse impact. 
  • The design of such programmes needs to strike a difficult balance between responding promptly to the pandemic and maintaining a sufficient level of prudence. Key features of a sample of programmes (eg target beneficiaries, coverage of the guarantee, loan terms, length of the programme) reflect this tension.
  • Incentives were created for the banks to join these programmes by exploiting flexibility in existing prudential requirements, while central banks have often provided liquidity support. Programmes are, however, subject to operational challenges and, ultimately, fiscal capacity limits.
A copy of the brief can be viewed here.
Bank of International Settlements

BIS Publishes Working Papers on Post-Crisis International Financial Regulatory Reforms

The Bank for International Settlements published working papers entitled, “Post-crisis international financial regulatory reforms: a primer”, which reviews post-crisis regulatory reforms, specifically reviewing the bank and Central Counterparties (CCP) international regulatory reforms and how CCP international standards fit within a “unified analytical framework”. The CCP reforms were implemented in response to the Great Financial Crisis (GFC) with the purpose of improving financial stability through the implementation of improved and new standards. The BIS working paper is primarily based on a review of the unified analytical framework and premised on the belief that the key concept of the framework is “shock-absorbing capacity, which is higher when (i) there is less exposure to the losses that a shock generates and (ii) there are more resources to absorb such losses.” The working paper argues that a “conservative regulatory approach” is necessary to address issues of political pressures on the economy and technical obstacles to reform, and “[a] higher cost of balance sheet space is a healthy side effect of the backstops underpinning such an approach". BIS’ summary of this working paper can be found here.

Bank of International Settlements

BIS Publishes Bulletin on Role of Prudential Policy in Covid-19 Losses

The Bank for International Settlements (BIS) published a bulletin entitled “Buffering Covid-19 Losses – the Role of Prudential Policy”, suggesting conditions to address the shock coronavirus pandemic has had on the economy through release of prudential buffers. The bulletin is divided into three parts: 1. Assessment of how banks are and will be affected by Covid-19 confinement measures and policy responses to the pandemic; 2. design and usability of prudential buffers; and 3. relaxing buffers to support banks.

According to BIS the following are key takeaways from the bulletin:

  • “By allowing banks to run down some of their buffers, policymakers are sending a strong signal about their resolve to lessen the economic fallout from the pandemic. Such prudential measures complement the main policy levers: monetary and fiscal instruments. 
  • To avoid a reduction in credit to the real economy, authorities need to ensure that banks have the capacity and willingness to make use of the flexibility afforded by the buffer release. Payout restrictions on banks and risk-sharing between banks and the public sector will be key.
  • For banks to continue playing a positive role in the supply of funding during the recovery, they should maintain usable buffers for a long period, as losses from a severe recession will take time to materialise.”
Bank of International Settlements

4th FSI COVID-19 Brief issued with Focus on Insurance

The Financial Stability Institute of the Bank for International Settlements issued its 4th Brief on Insurance Regulatory Measures in Response to COVID-19.  The highlights of the brief are as follows: 
  • Currently, insurers are more likely to experience losses from financial market volatility than from higher insurance claims arising from Covid-19. Few insurance supervisors have seen a need to strengthen or adjust prudential requirements to insulate insurers from current financial market uncertainties.
  • So far, authorities have responded mainly by taking measures to provide operational relief to insurers from regulatory and supervisory requirements so that they can continue providing insurance services. These measures will also help insurers to enhance risk monitoring of their Covid-19 financial exposures.
  • Some authorities have set out expectations for insurers to conserve capital through prudent exercise of dividend and variable remuneration policies. The aim is to enhance their resilience against huge uncertainties from potential Covid-19 fallout. Other capital-related measures should relieve supervisory pressures and reduce the tendency of insurers to manage their investments in a procyclical manner. These measures include: extending the supervisory intervention ladder, triggering the countercyclical lever and recalibrating capital requirements.
  • The far-reaching impact of Covid-19 calls for sustained vigilance by both supervisors and insurers. In the post-pandemic phase, the extraordinary measures currently warranted will need to be unwound through a carefully crafted exit strategy that preserves sound risk management practices and protects policyholders' interests.
A copy of the brief can be viewed here.
Bank of International Settlements

Third FSI Brief Issued with Covid-19 Expected Loss Guidance

The Financial Stability Institute of the Bank for International Settlements Issued it's Third Briefing on expected loss provisioning during a pandemic.  The guidance can be summarized as follows:
  • In the wake of the Covid-19 pandemic, several prudential authorities and the Basel Committee on Banking Supervision (BCBS), introduced a series of measures to clarify how banks should consider various public and private debt relief programmes in their ECL estimates and in their calculation of regulatory capital. These measures are intended to incentivise banks to continue supporting the real economy, while reducing pressure on banks' ECL provisions, earnings and regulatory capital.
  • Supervisory initiatives that provide capital relief should be augmented by severe constraints on the payment of dividends, bonuses and share buybacks. These joint actions will simultaneously expand banks' lending capacity and enhance their ability to absorb losses.
  • Prudential authorities face difficult trade-offs as they confront the most severe economic crisis in modern times. Encouraging the use of flexibility in applicable accounting standards, while preserving market trust and transparency in the reported financial statements of banks, will be key in fostering both economic and financial stability.
A copy of the guidance can be viewed here.
Bank of International Settlements

FSI Issues Second Brief on Covid-19 Operational Challenges

The Financial Stability Institute of the Bank for International Settlements Issued its second brief on Covid-19 addressing operational challenges of financial institutions.  The guidance suggests that regulators consider the following items when considering operational resilience during the crisis: 
  • Critical/essential employees: identifying the critical functions and employees that support important business services, as well as ensuring employees' safety and that they can safely resume their duties (remotely, if necessary).
  • IT infrastructure: ensuring that IT infrastructure can support a sharp increase in usage over an extended period and taking steps to safeguard information security.
  • Third-party service providers: ensuring that external service providers and/or critical suppliers are taking adequate measures and are sufficiently prepared for a scenario in which there will be heavy reliance on their services.
  • Cyber resilience: remaining vigilant in order to identify and protect vulnerable systems, and detect, respond and recover from cyber attacks.
A complete copy of the brief can be viewed here.
Bank of International Settlements

FSI Reflects on Reg Responses to Covid-19 Pandemic

The Financial Stability Institute (FSI) of the Bank of International Settlements issued its "Reflections on Regulatory Responses to the Covid-19 Pandemic.  Highlights of its findings include the following:
  • Regulatory policy responses should seek to support economic activity while preserving the financial system's soundness and ensuring transparency.
  • The recommendation for banks to make full use of capital and liquidity buffers should go hand in hand with restrictions on dividends and bonuses and clarity concerning the process for rebuilding them.
  • Flexibility in loan classification criteria for prudential and accounting purposes should be complemented with sufficient disclosure on the criteria banks use to assess creditworthiness.
  • The publication of detailed guidance on the application of expected loss provisioning rules, combined with sensible transitional arrangements, may constitute a balanced approach to mitigating the unintended effects of the new accounting standards.
A copy of the report can be viewed here.
Bank of International Settlements

BIS Addresses Public Concern Regarding Viral Transmission Through Cash

The Bank for International Settlements released a bulletin entitled, Covid-19, cash, and the future of payments, which addresses growing public concerns and questions about the possibility of transmitting viruses through cash. The Covid-19 pandemic has understandably catalyzed apprehension surrounding issues of hygiene, safety and transmission of the virus; and it logically follows that the public will have concerns about the physical use of cash. BIS’ bulletin establishes from the onset that its key takeaways are the following:

  • “The Covid-19 pandemic has fanned public concerns that the coronavirus could be transmitted by cash.
  • Scientific evidence suggests that the probability of transmission via banknotes is low when compared with other frequently-touched objects, such as credit card terminals or PIN pads.
  • To bolster trust in cash, central banks are actively communicating, urging continued acceptance of cash and, in some instances, sterilising or quarantining banknotes. Some encourage contactless payments.
  • Looking ahead, developments could speed up the shift toward digital payments. This could open a divide in access to payments instruments, which could negatively impact unbanked and older consumers. The pandemic may amplify calls to defend the role of cash – but also calls for central bank digital currencies.”

The BIS bulletin further reports the increase of media inquiries and internet searches regarding the safety of handling cash, with countries such as Australia, France, Singapore, Switzerland, Ireland, the United Kingdom, Canada, the United States, Jamaica and Kenya leading with the highest number of searches on this topic as of the publication of this bulletin on April 3, 2020. The bulletin concludes by placing emphasis on the value of central bank digital currencies (CBDCs), but with the caveat that they must be accessible to the underbanked with contact-free technical surfaces appropriate for the entire population. “The pandemic may hence put calls for CBDCs into sharper focus, highlighting the value of having access to diverse means of payments, and the need for any means of payments to be resilient against a broad range of threats.”

WOCCU will continue to follow finance and financial regulatory issues surrounding the Covid-19 pandemic as they develop.

Bank of International Settlements

Bank for International Settlements Enters the Environmental Finance Ring

In response to a growing demand for climate-friendly investments, the Bank for International Settlements (BIS) launched an open-ended green bond fund for central bank investments. This green bond fund initiative will aid central banks in managing their reserves by incorporating environmental sustainability objectives.

The open-ended fund promotes green finance by pooling BIS client assets through a fund and creating “sizeable climate-friendly investments” using best market practices. An advisory committee composed of a global group of central banks was created in support of the fund. “The initiative is part of the BIS's broader commitment to supporting environmentally responsible finance and investment practices, in line with the Bank's participation in the Central Banks and Supervisors.”[1]

The Network for Greening the Financial System, First Comprehensive Report, was published in April 2019, by eight central banks and supervisors who established a Network of Central Banks and Supervisors for Greening the Financial System (NGFS). The report states that NGFS members acknowledge that “climate-related risks are a source of financial risk. It is therefore within the mandates of central banks and supervisors to ensure the financial system is resilient to these risks.” NGFS now includes 34 central banks and supervisors, and five observers, including BIS; and recently, the Basel Committee agreed to join NGFS as an observer, indicating the relevance and importance of environmental finance issues for years to come.

[1] See, BIS 26-09-2019 press release at:

Bank of International Settlements

Basel Proportionality Study under Pillar 2 Approach to Oversight of Internationally Active Banks

In July 2019, the Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) published a study of the application of proportionality under Pillar 2 of the Basel framework. Sixteen jurisdictions were surveyed to examine their application of proportionality and how they implemented Pillar 2 principles. FSI stated that the key aim of the survey was, "to determine whether and, and if so, how supervisory authorities apply proportionality in tailoring risk management expectations and supervisory practices according to the size, complexity and risk profile of regulated entities."

The Basel Committee on Banking Supervision created a three pillar approach to the oversight of international banks, designating Pillar 1 to outline risk-based capital (RBC) rules, which are subject to supervisory review pursuant to Pillar 2 regulatory requirements and disclosure requirements set forth in Pillar 3. Pillar 2 requires an assessment of risk profile through a cumulative set of risk management requirements coupled with risk-based supervision (RBS). 

FSI's "Proportionality Under Pillar 2 of the Basel Framework", can be found here

Bank of International Settlements, Basel

Regulatory and Supervisory Challenges with Financial Inclusion Discussed at FSI-GPFI Conference

The BIS’s Financial Stability Institute (FSI) and the G20s Global Partnership for Financial Inclusion (GPFI) convened a conference to discuss the implications of fintech for financial regulation and supervision and the work of the various standard setting bodies.

Participants explored specific examples of adapting regulatory, supervisory and safety net practices to take into account fintech developments; ways for financial sector authorities to leverage the same technologies driving fintech to support their own work; and the application of the concept of proportionality in the implementation and assessment of international standards.

The conference took place in the context of accelerating change in the financial services landscape in countries across the income spectrum, including expanding opportunities for financial inclusion, but also new challenges for country-level authorities and for standard setting bodies.  Further coverage of this event can be found here.

WOCCU has been active surrounding developments in regulation concerning fintech most recently urging the Global Financial Innovation Network (GFIN) to ensure a level regulatory playing field for credit unions as well as including the principles of proportionality in connection with GFIN’s proposal to create a regulatory “global sandbox” for fintechs.  A copy of this letter can be viewed here

Bank of International Settlements

Agreement Reached on the Finalisation of the Basel III Framework

The Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision, announced that agreement has been reached on the finalisation of Basel III. The agreement improves the comparability of banks’ risk-weighted assets and reinforces the credibility of the bank capital framework. Agreement on these final elements means that key reforms pursued to address the causes of the global financial crisis has now been completed and can be fully implemented.

The reforms include the following elements: 

  • an aggregate output floor, which will ensure that banks' risk-weighted assets (RWAs) generated by internal models are no lower than 72.5% of RWAs as calculated by the Basel III framework's standardised approaches. Banks will also be required to disclose their RWAs based on these standardised approaches. (Advocated for by WOCCU which should help level the competitive playing field for credit unions and other community-based financial cooperatives          
  • a revised standardised approach for credit risk, which will improve the robustness and risk sensitivity of the existing approach;
  • revisions to the internal ratings-based approach for credit risk, where the use of the most advanced internally modelled approaches for low-default portfolios will be limited;
  • revisions to the credit valuation adjustment (CVA) framework, including the removal of the internally modelled approach and the introduction of a revised standardised approach;
  • a revised standardised approach for operational risk, which will replace the existing standardised approaches and the advanced measurement approaches;
  • revisions to the measurement of the leverage ratio and a leverage ratio buffer for global systemically important banks (G-SIBs), which will take the form of a Tier 1 capital buffer set at 50% of a G-SIB's risk-weighted capital buffer; and

A summary of the agreed reforms can be found in the summary document and the final text can be viewed here.  The revised standards will take effect from January 1, 2022 and will be phased in over five years. 

Bank of International Settlements