We Are In This Together
Volume 10, Number 4
April 29, 2020
Advocacy News You Can Use
“We are in this together” has been the rallying cry the world is using to help give us optimism to make it through the pandemic. And it is great to see the world rallying together to individually take those steps necessary to help stop the spread by social distancing, wearing masks and washing hands. It’s funny how that idea of coming together to help the collective its catching on. It makes me raise an eyebrow quizzically because, to some extent, I feel like the rest of the world is finally figuring out the secret that credit unions have known for years. People helping people, the cooperative model, pooling resources to help one another—it really works.
To that end, and to continue to help each other out, please visit our COVID-19 resource page, which has tips and examples from our global partners you can draw on to help with your credit union's specific issues. Also, just released, is our COVID-19 Guide for Credit Unions which brings together all of the regulatory guidance coming out of the international standard setting bodies, as well as some guidance on other issues applicable to credit unions.
We are in this together!
WOCCU Supported Measures Included in IADI Guidance Paper on Deposit Insurance Systems
The International Association of Deposit Insurers (IADI) released a Guidance Paper entitled, "Public Policy Objectives for Deposit Insurance Systems." The Guidance Paper gives an update on deposit insurance system public policy objectives in various jurisdictions as well as guidance for effective implementation of Principle 1 found in the IADI’s Core Principles for Effective Deposit Insurance Systems, which lays out essential public policy directives aimed to “protect depositors and contribute to financial stability." The paper includes “results of a survey conducted by IADI of members’ experiences in selecting, implementing and evaluating their PPOs”.
In October, WOCCU responded to the IADIs consultation on public policy objectives for deposit insurance systems and emphasized its support for IADI’s PPOs to protect depositors and support financial stability. However, we encouraged IADI to include proportionality guidance so that national level regulators have the clearance to properly tailor regulations for cooperative institutions that are often less complex and less risky than their for-profit bank counterparts. With success, IADI addressed the importance of proportionality and stated, “By setting only the minimum requirement, these guidance points are supportive of the principle of proportionality. In any case, their application is voluntary and deposit insurers are free to put in place their own PPO development process and review framework based on jurisdiction, circumstance and legal framework.”
Additionally, WOCCU urged IADI to create effective regulation that provides supervision and monitoring of depository institutions for credit unions, as well as the provision of technical and financial assistance programs that will contribute to the protection of deposits for cooperative depositories and smaller, less capitalized institutions. WOCCU noted an absence of data for deposit insurance systems designed for credit unions. In the survey, IADI listed the countries that had PPOs in place as of March 31, 2016, and of those countries, Poland was the only country found to ensure financial assistance for credit unions, but many countries did address small, less sophisticated depositors.
Why this matters to your credit union: Deposit Insurance schemes can often drive regulatory requirements such as capital standards, examination procedures, reporting requirements and others. Ensuring that the concept of “proportionality” is included in these principles allows national level authorities to “right-size” the regulations for credit unions and should help reduce regulatory burden.
Basel Committee Issues WOCCU-urged COVID-19 Regulatory Relief
The Basel Committee on Banking Supervision released technical guidance setting out additional measures to alleviate the impact of COVID-19 on the global banking system.
- Expected credit loss accounting: The Basel Committee notes that regarding the SICR assessment, relief measures to respond to the adverse economic impact of COVID-19 such as public guarantees or payment moratoriums, granted either by public authorities or by banks on a voluntary basis, should not automatically result in exposures moving from a 12-month ECL to a lifetime ECL measurement.
- Expected credit loss accounting transitional arrangements: The Basel Committee is allowing for the implementation of several transitional arrangements including applying exiting transitional arrangements even if those were not implemented initially. Additionally, for a two-year period comprising the years 2020 and 2021, jurisdictions may allow banks to add-back up to 100% of the transitional adjustment amount to CET1. The “add-back” amount must then be phased-out on a straight line basis over the subsequent three years.
- Capital treatment of non-performing loans, loans subject to moratorium or past due: The Basel Committee also provided treatment for a loan that might otherwise be considered troubled or in default, noting that jurisdictions can apply relief criterion for payment moratorium periods (public or granted by banks on a voluntary basis) relating to the COVID-19 outbreak such that they can be excluded by banks from the counting of days past due. Another criterion used is whether a bank considers that the borrower is unlikely to pay its credit obligations. The Committee has agreed that this assessment should be based on whether the borrower is unlikely to be able to repay the rescheduled payments.
- Non-centrally cleared derivatives: The Committee and the International Organization of Securities Commissions have agreed to defer the final two implementation phases of the framework for margin requirements for non-centrally cleared derivatives by one year.
WOCCU has urged this regulatory flexibility during the COVID-19 crisis. A copy of the guidance can be viewed here.
Why this matters to your credit union: The Basel Committee issuing relief for the effects of COVID-19 provides direction to national-level authorities to also extend flexibility in dealing with the crisis to credit unions. Directives such as these should provide regulatory relief for credit unions.
European Council Adopts Taxonomy Regulation for Sustainable Finance
The European Council adopted a regulation establishing an EU-wide common classification system “to encourage private investment in sustainable growth and contribute to a climate neutral economy." The Council hopes to establish this taxonomy by the end of 2021. It aims to give investors and businesses a way to identify environmentally sustainable economic activities through common language. The EU has a 2050 target to become climate neutral and a 2030 goal to reach Paris agreement targets. The taxonomy is expected to help achieve these goals by empowering investors to adjust their investments to “more sustainable technologies and businesses."
Eventually, a framework will be implemented based on six environmental objectives set up for the European Union that includes:
- climate change mitigation.
- climate change adaptation
- sustainable use and protection of water and marine resources.
- transition to a circular economy.
- pollution prevention and control.
- protection and restoration of biodiversity and ecosystems.
The press release on the sustainable finance taxonomy can be viewed here.
Why this matters to your credit union: Sustainable Finance is an emerging area of regulation that will affect the credit union industry dramatically over the next several years. The establishment of a taxonomy provides a “common language” that will be used in the implementation of policy and demonstrates a high level policy commitment to implementing changes addressing climate change.
Andrew T. Price, Esq.