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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

FSB Delivers Roadmap on Cross-Border Payments

The Financial Stability Board (FSB) published a roadmap to enhance cross-border payments. The roadmap has been delivered to G20 Finance Ministers and Central Bank Governors for their consideration. .

The G20 has made enhancing cross-border payments a priority during the Saudi Arabian Presidency. Faster, cheaper, more transparent and more inclusive cross-border payment services, including remittances, while maintaining their safety and security, would have widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.

Te report sets out actions and timelines in the following five focus areas:

  • Committing to a joint public and private sector vision to enhance cross-border payments
  • Coordinating on regulatory, supervisory and oversight frameworks
  • Improving existing payment infrastructures and arrangements to support the requirements of the cross-border payments market
  • Increasing data quality and straight-through processing by enhancing data and market practices
  • Exploring the potential role of new payment infrastructures and arrangements.
A copy of the roadmap can be viewed here.
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Financial Stability Board

FSB Publishes LIBOR Global Transition Roadmap

The Financial Stability Board (FSB) today published a global transition roadmap for LIBOR. 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.

In July the FSB reaffirmed that financial and non-financial sector firms across all jurisdictions should continue their efforts to make wider use of risk-free rates in order to reduce reliance on IBORs where appropriate and in particular to remove remaining dependencies on LIBOR by the end of 2021.

Among the steps in the Roadmap:

  • Firms should have already, identified and assessed all existing LIBOR exposures and agreed on a project plan to transition in advance of end-2021.
  • By the end of 2020, firms should be in a position to offer non-LIBOR linked loans to their customers.
  • By mid-2021, firms should have established formalised plans to amend legacy contracts where this can be done and have implemented the necessary system and process changes to enable transition to robust alternative rates.
  • By end-2021, firms should be prepared for LIBOR to cease
A copy of the press release can be viewed here.
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Financial Stability Board

FSB Publishes Report on the Rise of RegTech and SupTech

The Financial Stability Board (FSB) released a report entitled, The Use of Supervisory and Regulatory Technology by Authorities and Regulated Institutions: Market developments and financial stability implications. Within the report are 28 case studies that outline the use of SupTech and RegTech tools, and notes “that technology and innovation are transforming the global financial landscape, presenting opportunities, risks and challenges for regulated institutions and authorities alike.” The report will be provided to the G20 Finance Ministers and Central Bank Governors at their virtual meeting on October 14, 2020.

The report also highlights the possibility to improve financial stability through supervisory and regulatory technology: “For authorities, the use of SupTech could improve oversight, surveillance and analytical capabilities, and generate real time indicators of risk to support forward looking, judgement based, supervision and policymaking. For regulated institutions, the use of RegTech could improve compliance outcomes, enhance risk management capabilities and generate new insights into the business for improved decision-making.”

More information on the FSB report regarding SubTech and RegTech can be found here.

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Financial Stability Board

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

FSB Extends Implementation Timelines for Securities Financing Transactions

The Financial Stability Board (FSB) announced extensions to the implementation timelines for minimum haircut standards for non-centrally cleared securities financing transactions (SFTs), to ease operational burdens on market participants and authorities, and thereby assist them in focusing on priorities from the impact of COVID-19.

SFTs such as securities lending and repurchase agreements (repos) play a crucial role in supporting price discovery and secondary market liquidity for a wide variety of securities. However, such transactions can also be used to take on leverage as well as maturity and liquidity mismatched exposures, and therefore can pose risks to financial stability.

As a result of this action the implementation timelines for the FSB’s November 2015 recommendations on haircuts for non-centrally cleared SFTs will now be extended (Recommendations 14-18: see also updated Annexes 1, 3 and 4 of the November 2015 report for details). The implementation of Recommendation 16 will be extended until January 2022 (instead of January 2021), recommendations 14 and 18 will be extended until January 2023 (instead of January 2022), recommendation 17 will be extended until January 2024 (instead of January 2023) and recommendation 15 will be extended until January 2025 (instead of January 2024).

A copy of the press release can be viewed here.

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Financial Stability Board

WOCCU Present at FSB Workshop on Too-Big-To-Fail Reforms

The World Council of Credit Unions was present at a workshop held by the Financial Stability Board (FSB) which discussed the effects of the post-crisis financial reforms and an evaluation of the "too-big-to-fail" (TBTF) reforms for banks.  The FSB is in the process of finalizing the results of its evaluation and is allowing input from stakeholders as part of the process.    

In particular the workshop focused on the market perceptions of the credibility of the TBTF reforms, banks' responses to those reforms, and the broader effects of the reforms.  Although these reforms focus on issues affecting Global Systemically Important Banks (GSIBs) and Domestic Systemically Important Banks (DSIBs),

WOCCU continues to be concerned that regulatory proposals adopted for these entities often are applied to smaller financial institutions such as credit unions without proper proportional tailoring (i.e. "goldplating").  Further the reforms sometimes have the effect of displacing credit unions in the market and make access to capital markets, bank services, correspondent banks more difficult, in part due to the complexity of the TBTF reforms.

Comments are due to the FSB by September 30 and the consultation may be viewed here.

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Financial Stability Board

FSB Writes G20 On Cross-Border Payments Reform

The Financial Stability Board (FSB)  published a letter to the G20 from the FSB Chair, Randal K. Quarles, welcoming the report published by the Committee on Payments and Market Infrastructures (CPMI), which sets out building blocks for a roadmap to enhance cross-border payments.

The publication of the CPMI report marks the second of a three-stage process to develop a roadmap to enhance cross-border payments. It sets out the necessary elements to address the challenges of high costs, low speed, limited access and insufficient transparency of cross-border payments, highlighted by the first-stage FSB report published in April.  We anticipate the FSB to publish a roadmap as a third and final stage. .

A copy of the report can be viewed here.

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Financial Stability Board

FSB and Basel Committee Move to Transition Away from LIBOR by End of 2021

The Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS) published a report entitled, Supervisory issues associated with benchmark transition: Report to G20, which outlines supervisory recommendations LIBOR transition. The report concludes that, “Continued reliance of global financial markets on LIBOR poses clear risks to global financial stability. Transition away from LIBOR by end-2021 requires significant commitment and sustained effort from both financial and non-financial institutions (FIs and non-FIs) across many jurisdictions.” The report also includes surveys initiated by the FSB, the BCBS and the International Association of Insurance Supervisors (IAIS), developed to address remaining challenges to the benchmark transition.

The report outlined three recommendations that support LIBOR transition in jurisdictions with LIBOR exposures:

  • Identification of transition risks and challenges – authorities and standard-setting bodies to issue public statements to promote awareness and engage with trade associations, and authorities to undertake regular surveys of LIBOR exposure and to request updates from financial institutions.
  • Facilitation of LIBOR transition – authorities to establish a formal transition strategy supported by adequate resources and industry dialogue. Supervisory authorities should consider increasing the intensity of supervisory actions when the preparatory work of individual banks is unsatisfactory.
  • Coordination – authorities to promote industry-wide coordination, maintain dialogue on the adoption of fallback language, consider identifying legislative solutions, where necessary, and exchange information on best practices and challenges. The FSB and the standard-setting bodies will coordinate at the international level to identify key common metrics for monitoring transition progress.”

More information on the BSB and BCBS’ LIBOR transition report can be found here and here.

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Basel, Financial Stability Board

FSB Consults on Too-Big-To-Fail Refomrs

The Financial Stability Board issues a consultation on the evaluation of the effects of too-big-to-fail (TBTF) reforms fro systemically important banks.  The evaluation's main findings are as follows:

  • TBTF reforms have made banks more resilient and resolvable;
  • The benefits of the reforms significantly outweigh the costs; and
  • There are still gaps that need to be addressed.

The reforms being evaluated include: (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.

A copy of the consultation can be viewed here.

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Financial Stability Board

FSB Publishes Consultation Report on Cyber Incident Response and Recovery

The Financial Stability Board (FSB) provided their consultation report,  Effective Practices for Cyber Incident Response and Recovery, to the G20 Finance Ministers and Central Bank Governors for their April 15th virtual meeting. The report is a toolkit of 46 effective practices to address “cyber incident response and recovery activities”.

According to the FSB report, the effective practices consist of seven of the following components:

  1. Governance - frames how cyber incident and recovery is organised and managed.
  2. Preparation – to establish and maintain capabilities to respond to cyber incidents, and to restore critical functions, processes, activities, systems and data affected by cyber incidents to normal operations.
  3. Analysis – to ensure effective response and recovery activities, including forensic analysis, and to determine the severity, impact and root cause of the cyber incident to drive appropriate response and recovery activities.
  4. Mitigation – to prevent the aggravation of the situation and eradicates cyber threats in a timely manner to alleviate their impact on business operations and services.
  5. Restoration – to repair and restore systems or assets affected by a cyber incident to safely resume business-as-usual delivery of impacted services.
  6. Improvement – to establish processes to improve response and recovery capabilities through lessons learnt from past cyber incidents and from proactive tools, such as tabletop exercises, tests and drills.
  7. Coordination and communication – to coordinate with stakeholders to maintain good cyber situational awareness and enhances the cyber resilience of the ecosystem.

For more information on the FSB press release, visit their website here.

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Financial Stability Board

FSB Delivers Covid-19 Regulatory Principles to G20


The Financial Stability Board delivered a report setting out the financial stability implications of COVID-19 and policy measures taken to address them to the G20 Finance Ministeres and Central Bank Governors. 

The report sets out five principles that underpin the official community’s rapid and coordinated response to support the real economy, maintain financial stability and minimize the risk of market fragmentation. Using these principles, authorities will:

  • Monitor and share information on a timely basis to assess and address financial stability risks from COVID-19;
  • Recognize and use the flexibility built into existing financial standards to support our response; seek opportunities to temporarily reduce operational burdens on firms and authorities;
  • Act consistently with international standards, and not roll back reforms or compromise the underlying objectives of existing international standards; and
  • Coordinate on the future timely unwinding of the temporary measures taken.
A copy of the report can be viewed here
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Financial Stability Board

FSB Encouraging Flexibility in COVID-19 Response

The Financial Stablity Board (FSB) is encouraging authorities and financial institutions to make use of the flexibility within existing international standards to provide continued access to funding for market participants and for businesses and households facing temporary difficulties from COVID-19, and to ensure that capital and liquidity resources in the financial system are available where they are needed.

The FSB notes that many authorities have already taken action to release available capital and liquidity buffers, in addition to actions to support market functioning and accommodate business continuity plans.

WOCCU continues to urge flexibility by regulators to keep credit union operations functioning and able to finance the needs of their members.

A copy of the FSB release can be viewed here, and WOCCU's recommendations for purdential regulators can be viewed here

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Financial Stability Board

FCA Responds to ISDA with Letter on Non-Representative LIBOR

In December 2019, the International Swaps and Derivatives Association (ISDA) responded to a November 2019 letter from the Financial Stability Board’s (FSB) Official Sector Steering Group (OSSG) asking the ISDA to add a pre-cessation trigger in company with the cessation trigger as standard language in the definitions for new derivatives. The OSSG believes “[t]his would help to reduce systemic risk and market fragmentation by ensuring that as much of the swaps market as possible falls back to alternative rates in a coordinated fashion.” The ISDA requested a statement from the Financial Conduct Authority (FCA), and the ICE Benchmark Administration stating “ that the “reasonable period” during which a “non-representative” LIBOR would be published would be minimal (i.e., a number of months not years) after the FCA announces that LIBOR is no longer representative.”

The letter from FCA responding to ISDA’s request included reference to relevant laws and how FCA “intends to apply them”. The FCA’s letter also clarified that its, “preference is for an orderly cessation of LIBOR in which its discontinuation is pre-announced, market participants have prepared for this, and publication of a non-representative LIBOR is avoided.” The FCA’s response to the ISDA can be found here. More information regarding the chronicle of events surrounding group responses regarding the pre-cessation trigger can be found here.

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Financial Stability Board

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

FSB Issues Reports on Correspondent Banking

The Financial Stability Board (FSB), published two reports outlining its progress on its plan to assess and address the decline in correspondent banking relationships and or remittances service providers' access to banking service.  Notably the report notes that the decline in the number of correspondent banking relationships remains a source of concern for the international community, as the number of active correspondent banks declined by 3.4% in 2018, bringing the cumulative decline since 2011 to 19.3%. Concentration increased, as fewer correspondent banks are handling payments.

Access to correspondent banking relationships remains a critical issue in some regions and jurisdictions. WOCCU has consistently urged the continuation of efforts to reduce "de-risking" in the financial system which often creates obstacles for low risk credit unions trying to establish correspondent bank accounts or clear checks.

The FSB reports can be viewed here.

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Financial Stability Board

FSB Launces Evaluation of Too-Big-To-Fail Reforms

The Financial Stability Board (FSB) announced it is seeking feedback from as part of its evaluation of the effects of the "Too-Big-To-Fail" reforms for banks that were agreed by the G20 in the aftermath of the global financial crisis. The evaluation will assess whether the implemented reforms are reducing the systemic and moral hazard risks associated with systemically important banks and the broader effects of the reforms on the overall functioning of the financial system.  

Further information on the evaluation can be viewed here.

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Financial Stability Board

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

Report on Incentives to Centrally Clear OTC Derivatives Reflects WOCCU Concerns

The Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published their final report on Incentives to centrally clear over-the-counter (OTC) derivatives which includes provisions addressing issues raised by WOCCU in its comment letter

The report issued today notes that incentives available for larger firms were not always in place for other types of firms including credit unions and that this report c ould be used as a basis for possible fine-tuning some of the post-crisis regulatory reforms. 

The central clearing of standardised OTC derivatives is a pillar of the G20 Leaders' commitment to reform OTC derivatives markets in response to the global financial crisis and this report evaluates how these reforms interact and how they could affect incentives.

WOCCU will continue to monitor this report to ensure that access for credit unions and other community based-financial institutions are treated fairly and proportional.

A copy of the final report can be viewed here.

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Financial Stability Board

Cyber Lexicon Includes WOCCU Recommended Changes

The Financial Stability Board (FSB) published a Cyber Lexicon intended to support the work of the FSB, standard-setting bodies, authorities and private sector participants to address financial sector cyber resilience. 

WOCCU recently supported the initiative to develop a Cyber Lexicon to address cyber security and cyber resilience in the financial sector, but made numerous suggestions, many of which were included in today’s issuance.  Of note was the WOCCU recommended approach taken by the FSB to focus the scope of the lexicon on core terms and exclude overly technical terms as well as general business and regulatory terms to avoid confusion among industries.

The lexicon as adopted can prove to be useful to support work in the following areas:

  • Cross-sector common understanding of relevant cyber security and cyber resilience terminology;
  • Work to assess and monitor financial stability risks of cyber risk scenarios;
  • Information sharing as appropriate; and
  • Work by the FSB and/or standard-setting bodies to provide guidance related to cyber security and cyber resilience, including identifying effective practices.

The lexicon will be delivered to the G20 Leaders’ Summit in Buenos Aires later this month and can be viewed here.

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Financial Stability Board

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.

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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

WOCCU Urges Proportionality in FSB's Cyber Lexicon Initiative

The World Council of Credit Unions urged the Financial Stability Board (FSB) to take a proportional regulatory approach in its cybersecurity guidance so as to not impose an unreasonable compliance burden on community-based financial institutions, such as credit unions.  These comments came as part of World Council's comments on FSB's Consultative Document on Cyber Lexicon.

World Council supported FSB's initiative to develop a Cyber Lexicon and to address cyber security and cyber resilience in the financial sector as well as supporting the draft lexicon and the criteria used to develop it. 

A copy of the letter can be viewed here

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Comment Letter, Financial Stability Board