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

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

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Comment Letter, Financial Stability Board

ENCU Urges EBA to Address De-risking

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

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

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European Banking Authority, Comment Letter

ENCU Comments on Commission’s Initiative on Improving Resilience Against Cyberattacks

ENCU responded to a request for feedback to the European Commission’s public consultation regarding their initiative on improving resilience against the increasing number of cyberattacks. The European Supervisory Authorities (ESA) “advised the Commission to propose targeted improvements to the EU financial regulatory framework to develop a single regulatory and supervisory rulebook” for information communication technology (ICT) operational resilience in the financial sector. The Commission’s objective is to harmonize applicable rules to make the financial sector more secure and resilient through the reduction of compliance and administrative burdens.

In addition to the questionnaire which included questions on several topics including ICT systems and operational resilience, ENCU urged the Commission to consider risk-based and proportional requirements that are tailored to credit unions. Credit unions do not pose the same cybersecurity risks that banks do, and therefore require less stringent requirements in order to support the Commission’s goal to combat cyberattacks. ENCU also requested consideration for non-mandatory guidelines instead of hard rules to address digital operational resilience and cybersecurity issues. Flexibility to apply necessary strategies instead of overburdensome requirements will help alleviate cost and depletion on much needed resources that credit unions rely upon. Finally, ENCU asked that the Commission appoint only one prudential regulator for consistency in enforcement and regulation. A copy of the comment letter can be found here.

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European Commission, Comment Letter

ENCU Responds to European Commission’s Initiative to Combat AML/CFT

The European Network of Credit Unions (ENCU) responded to a request for feedback on the European Commission’s (Commission) action plan on money laundering & terrorism financing. According to the Commission, “Recent money laundering scandals put pressure on the EU to have a close look at the adequacy of the EU anti-money laundering framework.”[1] This initiative by the Commission aims to address areas of needed improvement in the money laundering and terrorism finance EU framework through new proposals. ENCU responded to this request for feedback and emphasized its support for this initiative while urging the Commission to consider “a risk-based approach, proportional requirements, national-level discretion to tailor regulations, and clear guidance to national level regulators on how to apply proportional regulations so that credit unions can continue its mission to improve financial inclusion and provide affordable and necessary services to the underserved European Union community.” ENCU’s comment letter to the Commission can be found here.

[1] See, Roadmap, Context, available at: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12176-Action-Plan-on-anti-money-laundering

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European Commission, Comment Letter

ENCU Comments on EBA Draft ITS on MREL and TLAC

ENCU responded to the European Bank Authority’s consultation regarding their Draft Implementing Technical Standards (ITS) on Disclosure and Reporting of MREL and TLAC. The draft ITS consisted of the EBA’s proposals for MREL/TLAC templates and tables that implement disclosure and reporting requirements. The EBA hopes to “optimise efficiency by institutions when complying with their disclosure and reporting obligations, to facilitate the use of information by authorities and market participants, and to promote market discipline.” The EBA requested feedback on the necessity, discrepancies, and clarity of specified tables and templates. ENCU emphasized its support for the EBA’s efforts to “to maximise efficiency by institutions when complying with their disclosure and reporting obligations, and to facilitate the use of information by authorities and market participants.” ENCU’s comments on this draft ITS can be found here.

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European Banking Authority, Comment Letter, ENCU

World Council Urges Basel Committee to Consider Credit Union Difference in AML/CFT Guidance

The Basel Committee on Banking Supervision (Basel Committee) released a consultation requesting feedback on their Consultative Document: Introduction of Guidelines on Interaction and Cooperation Between Prudential and AML/CFT Supervision (Consultative Document). The Basel Committee’s goal is “[t[o] enhance the effectiveness of supervision on banks’ ML/FT risk management, the Committee proposes to provide further guidelines on interaction and cooperation between prudential supervision and anti-money laundering and countering financing of terrorism (AML/CFT) supervision.” World Council supported this objective, but urged the Basel Committee to not only consider the unique structure of credit unions when determining how to assess an institution’s money laundering and financing terrorism risks, but to give clear guidance to national-level regulators on how to appropriately and proportionately assess risk for credit unions. World Council further suggested that both prudential and AML/CFT supervisors outline a coordinated proportional approach to the enforcement, management, and assessment of credit unions based on their unique organization structure, as well as consideration for privacy concerns surrounding information sharing with supervisors, and confidentiality concerns with observers that may participate in colleges or other attendees participating on an ad hoc basis. WOCCU’s response to the Consultative Document can be found here.

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Basel, Comment Letter

ENCU Responds to EBA Consultation on Draft Implementing Technical Standard for Pillar 3 Disclosures

The European Banking Authority (EBA) released two public consultations on the Implementing Technical Standard (ITS) for financial institutions’ public disclosure and on supervisory reporting for CRR2. The Draft [ITS] on public disclosures by institutions of the information referred to in Titles II and III of Part Eight of Regulation (EU) No 575/2013 was developed to create uniform disclosure formats under the regulation, as well as update EBA’s policies on the Pillar 3 disclosures, “in order to foster the role of institutions’ disclosures in promoting market discipline through… the development of a comprehensive implementing technical standard (ITS) on disclosure.” The European Network of Credit Unions (ENCU) applauded the EBA’s priority to honor Basel 3’s proportionate approach to small and non-complex institutions by decreasing the number or required disclosures and allowing them to focus only on key metrics. ENCU, however, urged the EBA to provide more detailed guidance within their templates, tables and accompanying instructions regarding which disclosures specifically apply to small and non-complex institutions. For more information on the Draft ITS on supervisory reporting for CRR2 and backstop regulation, check out our blog post here. ENCU's response to the EBA's Draft Implementing Technical Standard for Financial Institutions' Public Disclosure can be found here

The Draft [ITS] on public disclosures by institutions of the information referred to in Titles II and III of Part Eight of Regulation (EU) No 575/2013 can be downloaded here.

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European Banking Authority, Comment Letter, ENCU

ENCU Responds to EBA Consultation on Draft Implementing Technical Standard on Supervisory Reporting

The European Banking Authority (EBA) solicited comment on their Draft Implementing Technical Standards on supervisory reporting requirements for institutions under Regulation (EU) No 575/2013 (Draft ITS), which addresses “institutions’ compliance with prudential requirements as put forward by the CRR and related technical standards as well as additional financial information required by supervisors to perform their supervisory tasks.” Additionally, the EBA the Draft ITS revised reporting modules to adhere to two amendments to the CRR made in 2019  regarding liquidity, leverage and large exposures; and amending the’ backstop regulation’ “which sets out uniform minimum levels of coverage to ensure that institutions have sufficient loss coverage for future non-performing exposures (NPEs)” The European Network of Credit Unions (ENCU) stated its support for the EBA’s updates and revisions to its Draft ITS, and the incorporation of proportionality in the reporting requirements, however, ENCU urged EBA to encourage finalization of the Basel standards using proportionality in the reporting requirements.  This consultation ran parallel with the EBA’s consultation on ITS on public disclosures; and for more information on ENCU’s response to this consultation, please see our blog post here. ENCU's response to the EBA Consultation on Draft Implementing Technical Standards on Supervisory Reporting can be viewed here

The Draft [ITS] on supervisory reporting requirements for institutions under Regulation (EU) No 575/2013, can be downloaded here.

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European Banking Authority, Comment Letter, ENCU

ENCU Urges Proportionality in EBA's Reporting Requirements for Market Risk

The European Network of Credit Unions (ENCU) responded to the European Banking Authority's public consultation regarding specific supervisory reporting requirements for market risk. These requirements are the initial elements of the Capital Requirements Regulation's (CRR2) launch of the Fundamental Review of the Trading Book. The consultation serves to "include proposals for a thresholds template, providing insights into the size of institutions’ trading books and the volume of their business subject to market risk, and a summary template, reflecting the own funds requirements under the ‘Alternative Standardised Approach’ for market risk (MKR-ASA)." In a comment letter, ENCU responded directly to the EBA’s Draft Implementing Technical Standards on specific reporting requirements for market risk, and stated its support their Draft Standards, but urged the EBA to finalize these standards with consideration for credit unions by implementing proportional requirements that recognize the limited resources of smaller financial institutions. ENCU’s comment letter can be viewed here.

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European Banking Authority, Comment Letter, ENCU

WOCCU Urges Proportionality for Credit Unions in FATF Digital Identity Guidance

In a comment letter to the Financial Action Task Force (FATF) regarding their Draft Guidance on Digital Identity, WOCCU urged (FATF) to implement further guidance to national-level regulators to focus on an effective system that avoids imposing overly burdensome requirements and provide some flexibility for the unique structure of credit unions and cooperative financial institutions. WOCCU responded to four questions posed by FATF regarding the role of digital identity in relation to money laundering and terrorist financing, financial inclusion, due diligence and transaction monitoring, and record keeping requirements. WOCCU concurs with FATFs risk-based approach to digital identify for customer due diligence as well as their endeavors to support financial inclusion, however, WOCCU emphasized the need to implement " guidance directing supervisors to consider some high level principles such as whether an institution has cross-border operations, the asset size, the institutions interconnectedness with the financial system, the degree to which they report to multiple prudential supervisors, the mix of business activities, the average level of transactions that occur in any account and that further corresponds to the size, and the complexity and risk of a financial institution."

WOCCU's comment letter to FATF regarding their draft guidance on digital identity can be found here.  



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FATF, Comment Letter

ENCU and WOCCU Appeal to Ukraine's National Commission Regarding CRD IV Exemption

On August 26, 2019, the European Network of Credit Unions (ENCU) and the World Council of Credit Unions (WOCCU) sent letters to Ukraine's National Commission for the State Regulation of Financial Service Markets regarding the revised Regulations on Mandatory Standards and Requirements Limiting the Risk of Operations with Credit Union Financial Assets, and their relationship to the European Union Capital Requirements Directive (CRD IV). Both ENCU and WOCCU urged the Commission to adopt new regulatory norms and regulations that will help strengthen the credit union system.  If adopted the norms should pave the way for and amendment to the EU-Ukraine's Association Agreement incorporating a CRD-IV exemption for credit unions.  This exemption will bring credit unions in line with numerous other EU countries that provide a similar exemption, all of which will assist credit unions with their operations. 

Comment Letters:
ENCU Comment Letter: Regulations on Mandatory Standards and Requirements Limiting the Risk of Operations with Credit Union Financial Assets and Ukrainian Exemption from EU Basel III Capital Requirements Directive (CRD IV)

WOCCU Comment Letter: Regulations on Mandatory Standards and Requirements Limiting the Risk of Operations with Credit Union Financial Assets and Ukrainian Exemption from EU Basel III Capital Requirements Directive (CRD IV)

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European Commission, Comment Letter, ENCU

WOCCU Urges Further Proportionality Guidance for Basel Framework

WOCCU urged the Basel Committee on Banking Supervision (Basel Committee) to include clearer guidance on the factors appropriate for national-level regulators to consider when developing proportionate approaches when implementing the Basel Framework. 

WOCCU noted that national-level supervisors often view the framework as a floor and either adopt the standard outright or even exceed the standard without proportionally tailoring the regulation to the size, complexity and risk of credit unions.  As such, stronger guidance that exceeds the clear statements on proportionality already included in the Basel framework are necessary.

The comments came as part of the consultation by the Basel Committee on is Consolidated Basel Framework which is designed to clearly and comprehensively set out the policy contained in the numerous published Basel standards adopted since the financial crisis.

A copy of the letter can be viewed here.

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Basel, Comment Letter

ENCU Urges European Commission to Reduce Reg Burden on Distance Marketing Rules

ENCU urged the European Commission to avoid duplication and overlap of the implementation of the Distance Marketing of Financial Services Directive, particularly when there are product specific directives or national-level rules governing similar conduct.  ENCU noted that often inconsistencies or additional processes required by competing regulations often lead to additional costs and expenses without any corresponding benefit to consumers. 

The comments came as part of the European Commission’s Evaluation of the EU Rules on Distance Marketing of Financial Services that sets out what information a consumer should receive about a financial service and its provider before conducting a distance contract.

A copy of the comment letter can be viewed here.

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European Commission, Comment Letter, ENCU

WOCCU Urges Further Proportionality to FSB in Too Big to Fail Evaluation

WOCCU urged the Financial Stability Board (FSB) to consider issuing clearer guidance on factors that should be considered by national level regulators when developing proportionate approaches to the numerous standards adopted since the financial crisis, many of which are targeted to the "Too-Big-To-Fail" institutions.  

WOCCU noted that the complexity, usefulness, and corresponding regulatory burden and costs for smaller non-systemically important credit unions often becomes questionable, particularly those that are only involved in deposit taking and simple retail consumer lending.  While many of the Too Big to Fail Reforms were necessary, the application to credit unions and other mutuals needs to be appropriately and proportionately tailored.

The comments came as part of the FSB's Evaluation of the Too-Big-To-Fail Reforms.

A copy of the letter can be viewed here.
 

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Comment Letter, Financial Stability Board

WOCCU Calls for Further Proportionality Guidance for Credit Unions

Following a meeting by representatives of the credit union industry, the World Council of Credit Unions wrote to the Basel Committee on Banking Supervision (Basel Committee) to ask for further guidance to achieve the goal of better proportionality in regulation for credit unions.

In its letter, WOCCU urged additional guidance in the form of a set of high-level principles or weighing-factors on when less complex regulatory approaches can be warranted.  WOCCU noted that without additional guidance, many national-level policymakers continue to feel obligated to apply Basel III and other Basel Committee standards to non-complex, purely domestic deposit-taking institutions such as credit unions.  This notwithstanding that the Basel framework is intended only for internationally active banks and the expensive compliance standards are not warranted for credit unions. 

This letter followed an effort led by WOCCU making the case for proportionality to the Basel Committee last week with several representatives of the credit union industry including Canadian Credit Union Association (CCUA) President & CEO Martha Durdin, Customer Owned Banking Association (COBA) President & CEO Mike Lawrence and Credit Union National Association (CUNA) Chief Advocacy Officer Ryan Donovan.

A copy of the letter can be viewed here.

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Basel, Comment Letter

WOCCU Urges Further Proportionality to FSB to Increase SME Lending

WOCCU urged the Financial Stability Board (FSB) to continue with proportionality efforts in light of the voluminous regulatory reforms adopted since the financial crisis.  WOCCU noted that the additional complexity often filters down disproportionately to smaller, less complex institutions such as credit unions and other community based cooperative institutions.  WOCCU commented that these regulations need to be proportionately tailored and noted that the effects can have significant impact in their ability to lend to SMEs. 

These comments came as part of the FSB’s request for Feedback on the Effects of Financial Regulatory Reforms on SME Financing where they are evaluating how the regulatory reforms have affected SME lending.

A copy of the letter can be viewed here.

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Comment Letter, Financial Stability Board

WOCCU Urges Basel Committee to Provide Flexibility with Leverage Ratio Disclosures

World Council urged the Basel Committee on Banking Supervision (Committee) to make the use of daily averages in disclosures optional for non-complex depository institutions such as credit unions and other community-based mutual depository institutions that follow standardized risk-based capital rules. 

The Committee is seeking input in its consultative document Revisions to Leverage Ratio Disclosure Requirements and is seeking to address the issue of “window dressing” that occurs with internationally active, publicly traded banks reduce their balance sheets for end-quarter and end-year disclosure purposes that have macroeconimic effects and can provide misleading information to investors. 

WOCCU notes that credit union do not typically engage in this “window dressing” behavior and thus the disclosures may result in disproportionate reporting burdens on credit unions.  WOCCU did urge the ability to have the option of using daily averages for reporting purposes.

A copy of the comment letter can be viewed here.

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Basel, Comment Letter

WOCCU/CUNA Urge IRS to Reduce FATCA Regulatory Burden

WOCCU and the Credit Union National Association (CUNA) jointly urged the Internal Revenue Service (IRS) to reduce regulatory burden for Credit Unions in connection with the Foreign Account Tax Compliance Act (FATCA).  These comments came as part of the IRS’ FATCA rulemaking efforts looking for regulations that should be modified or eliminated in order to reduce unnecessary burdens. 

WOCCU and CUNA strongly supported many aspects of the rule that will reduce unnecessary regulatory burden for credit unions including the elimination of withholding on payments of gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the United States.

FATCA places significant compliance costs on U.S. credit unions, especially those that engage in remittances and/or have members who are not U.S. citizens. As a result, Americans living and working abroad have had their bank accounts closed, as well as loans and mortgages recalled and denied. This is in large part because many financial institutions simply cannot justify serving these members and customers due to the high costs associated with FATCA compliance. 

A copy of the comments can be viewed here.

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Comment Letter

ENCU Urges ESA to Minimize AML/CFT Regulatory Burdens

The European Network of Credit Unions urged the European Supervisory Authorities to use the increased communication and collaboration that will be gained as a result of the revised guidelines for the “AML Colleges” to reduce regulatory burden for credit unions. 

These comments came as part of the consultation process on the Draft joint guidelines on the cooperation and information exchange for the purposes of Directive (EU) 2015/849 between competent authorities supervising credit and financial institutions. The AML Colleges will be used to establish supervisory protocols when an institution crosses over multiple countries or jurisdictions for supervision regarding Anti-Money Laundering and Countering Financing of Terrorism.

ENCU noted that AML/CFT burdens are often disproportionately borne by credit unions as they do not have the economies of scale as larger institutions and are not-for-profit, member-owned cooperatives governed by a board of members who usually serve on a voluntary basis without receiving any remuneration for time and resources dedicated to the credit unions.

A copy of the comment letter can be viewed here.

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European Banking Authority, Comment Letter, ENCU

WOCCU Urges Basel Committee to Preserve Access for Credit Unions to Interest-Rate Derivatives

WOCCU urged the Basel Committee on Banking Supervision (Basel Committee) to preserve community-based financial institutions’ access to interest-rate derivatives in order to hedge interest rate by adopting revisions to the leverage ratio that utilizes the standardized approach to counterparty credit risk (SA-CCR) for a banks’ leverage ratio capital requirements with respect to client cleared derivatives. 

WOCCU notes that unless such revisions are made, smaller users of interest rate swaps and caps may no longer be able to access interest rate derivatives at fair rates, or at all.  This access is important as it helps promote safety and soundness by helping credit unions hedge interest rate risks related various items that may be in their portfolios or similar fixed-rate investments.

These comments were filed as part of the Basel Committee’s Consultative Document:  Leverage Ratio Treatment of Client Cleared Derivatives and a copy of WOCCU’s letter can be viewed here.

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Basel, Comment Letter

WOCCU Urges Clarification by IASB on Treatment of Financial Instruments with Characteristics of Equity

In a recently filed comment letter with the International Accounting Standards Board (IASB) on their Discussion Paper:  Financial Instruments with Characteristics of Equity, WOCCU strongly supported continuing the IASB existing approach to classifying cooperative shares as equity when the cooperative has an unconditional right to refuse redemption of the shares,  yet urged clarification on the IASB’s approach to the treatment of accounting for convertible bonds and similar instruments particularly as they relate to contractual and non-contractual rights of the instrument.

A copy of the comment letter can be viewed here.

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International Accounting Standards Board, Comment Letter

WOCCU Urges Increased Proportionality in Inter-US/Canada Regulations

World Council urged both the United States and Canada to adopt proportional approaches to regulations and not adopt a “one-size-fits-all” approach that increases burdens for smaller financial institutions such as credit unions that often lead to higher costs, reduced services and reduced growth as part of the strategy to improve trade relationships that will benefit both Canada and the United States.

These comments came were made on a Request for Information from the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget’s (OMB) for the United States-Canada Regulatory Cooperation Council (RCC) on the respective country’s efforts to reduce unnecessary regulatory differences between the United States and Canada.

WOCCU noted that the member-owned not-for-profit structure of credit unions that returns their earnings directly to their members warranted such as a proportional approach and would lead to better aligned regulatory systems, greater integrated economies, and improved trade relationships.

A copy of the letter can be viewed here.

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Comment Letter

WOCCU Urges Level Playing Field for Regulatory "Global Sandbox" for Fintechs

WOCCU urged 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 on creating a regulatory “global sandbox” for fintechs.    

GFIN is collaboration between 12 regulators and other related parties who are seeking to provide a more efficient way for innovative firms to interact with regulators, helping them navigate between countries as they look to scale new ideas.   Their proposal will also create a new framework for cooperation between financial services regulators on innovation-related topics.

World Council supports many aspects of the GFIN’s proposed mission statement but urges the Member Agencies of the GFIN also to include the principles of a level regulatory playing field and the principle of proportionality.  

World Council also recommended:

  • All participants in the financial sector, including fintechs and other non-traditional firms accepting deposits or similar repayable funds, should be subject to the same comprehensive and effective anti-money laundering/combating the financing of terrorism
  • Pilot programs to promote regulatory innovation should be conducted at the national or provincial level. The World Council does not support conducting cross-border trials;
  • GFIN make the protection of depositors from risk of loss a fundamental aim of the network, especially in jurisdictions where fintechs and other non-traditional firms accept deposits;
  • GFIN exercise caution in granting exemptions from existing regulations for so-called “new” activities that are really traditional banking activities delivered from a new channel;
  • GFIN member agencies should achieve a high level of coordination and cooperation with other global standard-setting bodies.

 A copy of the letter can be viewed here.

 

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Comment Letter

WOCCU Urges Flexibility by FSB for Legal Entity Identifier

WOCCU urged the Financial Stability Board to incentivize increased uptake of the Legal Entity Identifier rather than to mandate its usage.  This approach will limit unreasonable regulatory burdens on credit unions and other community-based financial institutions as the expense of such adoption outweighs the benefit of mandatory adoption.  WOCCU acknowledged the benefits of optional adoption that can result from the use of LEI in areas such as AML/CFT and other areas,but did not support mandatory adoption for smaller institutions.

These comments came as part of the FSB's Thematic peer review on implementation of the Leal Entity Identifier:  summary Terms of Reference.


A copy of WOCCU's letter can be viewed here.

Tags
Comment Letter, Financial Stability Board

WOCCU Urges Continued Credit Union Access to Central Clearing of OTC Derivatives.

WOCCU made numerous recommendations that will allow credit unions to continue to have access to central clearing of over-the-counter derivatives.  In particular WOCCU urged a reduction in Basel III’s capital requirements for issuers and clearers of interest-rate swaps and caps to help better ensure continued access to interest rate derivatives for credit unions.  Without changes to these rules, the banks’ cost of capital for issuing or clearing interest rate derivatives may result in the banks dropping credit unions and other smaller derivatives users as clients.

The comments were filed in response to the Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructure (CPMI) and the International Organization of Securities Commissions’ (together “the Committees”) Consultative Document: Incentives to centreally clear over-the-counter (OTC) derivatives.

A copy of the letter can be viewed here.

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Basel, Comment Letter, Financial Stability Board