On Advocacy….
Volume 15, Number 4
April 25, 2024
Advocacy News You Can Use
This month, WOCCU filed its letter with the President of the Central Bank of Brazil, which is hosting the G20 Summit this year. Our message was one that emphasized the importance of proportionality, its relationship to financial inclusion, and the important role that member owned financial cooperatives play in achieving responsible and affordable financial services for all. WOCCU engages in this type of advocacy for its members because the G20 gives direction to the international standard setting bodies, who then adopt standards that arrive at the national level for credit unions. It is the most direct way to influence the outcome of policies for credit unions.
This brings me to one of the early lessons of my career working for a regulator. I was assigned to work on substantial changes to a particular state’s money transmitter code. I was new to the legislative process and working with the state’s legislative body was a new experience. I was surprised by the presence of lobbyists paid by various groups that were present during all stages of the process. Many of them represented large corporations. It took a while to understand their role and their access to government officials. When discussing this with my then supervisor, he stated to me that the reason they spend so much time on advocacy on behalf of their clients is that they know if you are not there, if you are not present, and if you do not articulate your needs, someone else will write the rules for you.
It was an early lesson that sometimes just showing up is often the biggest step you can take to help shape policy decisions. Legislative and policymaking bodies often don’t have the information they need to shape policy. They need input from those that they regulate. Absent that input, they will make rules that don’t make sense or that can otherwise do harm to the industry.
Advocacy shouldn’t be looked upon with disfavor. It is critical to our industry. It helps our perspective to be heard. It helps promote problem solving. It helps to educate the broader community. It helps foster respect for our industry. It helps to shape the policies, laws and regulations that support our industry. Finally, it helps us serve our members.
If you have been hesitant to engage in advocacy, I would urge you to please reconsider. Sometimes, just showing up will make all the difference.
World Council Urges G20 to Support Credit Unions on Financial Inclusion
The World Council of Credit Unions urged the G20 to adopt language in this year’s Leaders’ Declaration to embrace proportionality that can enable credit unions as community based financial institutions to address financial inclusion around the world. This year’s Summit under Brazil’s Group of Twenty (G20) Presidency focuses on the theme “Building a Just World and a Sustainable Planet.” This theme highlights the world’s commitment to fair agreements that promote global economic and social development and the reduction of inequality worldwide.
To that end, World Council notes that policies conducive to increasing financial literacy and consumer protection, reducing financial exclusion, bridging the digital divide among many groups, and reducing inequalities are key to an equitable future. Specifically, the connection between proportionality an enabling non-profit, community based financial institutions can play a critical role in accomplishing these goals.
World Council notes that a barrier to the proportional tailoring of regulations often occurs at the national level. Thus, the requested language in the Leaders’ Declaration urges international standard setting bodes such as the Financial Stability Board to work with various agencies on the implementation of proportionality that is often already imbedded in global standards.
World Council has made this a priority of its advocacy efforts joining with many of its G20 members to urge their respective finance ministers to support this effort. The G20 has heeded World Council’s call to address financial inclusion in past years declarations and specifically last year where they embraced proportionality included in the newly adopted sustainability disclosures issued by the International Sustainability Standards.
This year’s Summit will occur later this year in November. A copy of the letter can be viewed here.
Why this matters to your credit union: The G20 gives direction to the international standard setting bodies. These standards are then used by national-level regulators to establish rules for credit unions. The G20 embracing proportionality ensures that rules and regulations can be tailored appropriately for credit unions.
FSB Europe Group discusses Crypto and Real Estate Risks
The Financial Stability Board (FSB) Regional Consultative Group (RCG) for Europe met in London to discuss global and regional macroeconomic developments and their implications for financial stability. In particular, they discussed the macro-financial environment that continues to be shaped by the adjustment of the global economy to high interest rates, while geopolitical factors are weighing on the outlook.
The group noted that despite tight financing conditions and subdued confidence, growth in the region is projected to gradually pick up, amid a recovery in real incomes. In global financial markets, certain asset valuations remain stretched and vulnerable to adjustment in the face of adverse shocks. Members discussed sectors which warranted close monitoring, specifically the outlook for – and risks associated with – commercial real estate markets, which have been undergoing a substantial adjustment recently, due to both cyclical and structural shocks.
Members received an update on the FSB’s work priorities for 2024, including its deliverables under Brazil’s G20 Presidency. The effective implementation of its global regulatory and supervisory framework for crypto-asset activities and markets is a key focus for the FSB. Members shared their experiences in addressing regulatory challenges stemming from the cross-border and cross-sectoral nature of crypto-asset activities. They also exchanged views on preparations for new crypto-asset regulations entering into force, such as the Regulation on Markets in Crypto-assets (MiCA) in the European Union and the proposed regulatory regime for crypto-assets in the United Kingdom.
The Brazilian G20 Presidency has asked the FSB to take stock of new developments in artificial intelligence (AI) and their potential implications for financial stability. The day before the meeting, the RCG held a seminar with invited guests from academia and industry on AI and its role in the financial system. The discussion focused on developments in AI, use cases in the financial sector, and implications for financial stability.
A copy of the release can be viewed here.
Why this matters to your credit union: The Financial Stability Board influences policy related to any emerging issue that may have an impact on financial stability. Emerging economic issues such as commercial real estate or regulatory issues like the regulation of crypto-assets will inevitably spawn new regulations. These discussions provide insight into how policy will change for credit unions.
FSB Consults on Liquidity Preparedness
The Financial Stability Board (FSB) published a consultation report on liquidity preparedness for margin and collateral calls. The report sets out eight proposed policy recommendations to enhance the liquidity preparedness of non-bank market participants for margin and collateral calls in centrally and non-centrally cleared derivatives and securities markets (including securities financing such as repo).
In particular, the report:
- Identifies weaknesses in risk management and governance as key causes of inadequate liquidity preparedness by some non-bank market participants during recent incidents of liquidity stress in financial markets.
- Proposes eight policy recommendations focused on managing and mitigating the impact of spikes in margin and collateral calls in the non-bank financial intermediation (NBFI) sector.
- Makes proposed recommendations cover liquidity risk management and governance, stress testing and scenario design, and collateral management practices of non-bank financial institutions.
The report highlights the need for policy adjustments to deal with liquidity strains in the NBFI sector arising from spikes in margin and collateral calls during times of market stress, such as the March 2020 market turmoil, Archegos, and the commodities markets turmoil and stress in liability-driven investment funds in 2022. To achieve this, the FSB is proposing eight high-level and cross-sectoral policy recommendations that build on and complement existing rules and regulations on liquidity risk management across different sectors and jurisdictions.
The recommendations cover liquidity risk management and governance, stress testing and scenario design, and collateral management practices of non-bank market participants, focusing on liquidity risks arising from spikes in margin and collateral calls. They apply to non-bank market participants that may face margin and collateral calls, including insurance companies, pension funds, hedge funds, other investment funds and family offices. They are proposed to apply proportionately with a focus on non-bank market participants with material exposures to spikes in margin and collateral calls during times of stress. The report also highlights the need for financial intermediaries in bilateral transactions with non-financial entities, such as commodities traders, to consider assessing their liquidity preparedness for spikes in margin calls and collateral during times of stress.
A copy of the consultation can be viewed here.
Why this matters to your credit union: The fallout from recent bank failures such as Silicon Valley Bank in the U.S. and Credit Suisse are now resulting in policy changes. This consultation provides insight into the direction that international standard setters are taking with respect to liquidity management. Expect some of these principles to show up with credit union prudential regulators.
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Andrew T. Price, Esq. |
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