It’s Not Over Until It’s Over!
Volume 12, Number 7
September 28, 2022
Advocacy News You Can Use
Those outside of the United States may not recognize the quote usually attributed to the baseball player Usually, this saying appears in the sports context to articulate the principle that something might happen, even if last minute or otherwise improbable, that might change the outcome of the game. This is somewhat true recently with the IFRS and their proposal with IFRS for SMEs. WOCCU has long advocated for clear authority to allow national level credit union regulators to utilize this standard for implementing IFRS 9 or CECL (in the United States) for credit unions. During the review process, the International Accounting Standards Board (IASB) initially declined to review the scope, which meant any possibility of changing the scope to allow for clarification of the use by credit unions was nearly impossible.
WOCCU went to work making numerous comments, attended several meetings and conferences pushing the issue. At the last minute, with the release of the IFRS proposals to update the IFRS for SMEs Accounting Standard, the door was opened with some proposed revisions that would clarify the ability to use the standard for credit unions, despite the Board’s direction to not consider changes to the scope. Indeed, the game is not over. It will take some time to reach finalization of this standard and changes may still come. However, what seemed like a long shot, now looks like reason for optimism.
World Council Applauds International Accounting Standards Board Proposal to Update IFRS for SMEs
WOCCU advocated for measure to reduce regulatory burden on credit unions
The International Accounting Standards Board (IASB) of the IFRS Foundation this month issued proposals to update the IFRS for SMEs Accounting Standard—a step long-advocated for by World Council of Credit Unions (WOCCU) as a way to reduce regulatory burdens for credit unions when implementing IFRS 9, or CECL as it is known in the United States.
The proposal permits smaller financial institutions to state their financials in conformity with the IFRS for SMEs accounting standard, signifying a “lighter touch” than the full IFRS standard. This will leave room for national-level regulators to adopt a standard that can reduce regulatory burden while still providing financials in accordance with international standards.
Several countries have applied their accounting standards for credit unions loosely based on IFRS for SMEs, while others have been hesitant to consider this approach subject to the definition of “publicly accountable” contained in the standard.
The proposed amendments will bring some needed clarity to the characteristics of an entity that is considered “publicly accountable,” thus clarifying that the IFRS for SMEs standard can be afforded to credit unions.
“Clarification that allows some credit unions to be considered IFRS for SMEs compliant, especially smaller institutions and those in developing countries, is sound public policy. It will help limit excessive compliance burdens on small institutions and increase the usefulness of their accounting statements,” said Andrew Price, WOCCU Senior. Vice President of Advocacy/General Counsel.
WOCCU will provide comments on this proposal to the IASB soon, with anticipation that finalization of the proposal may occur in 2023 or early 2024.
A copy of the IASB proposal can be viewed here.
Why this matters to your credit union: The ability to use IFRS for SMEs for credit unions in implementing the expected loss calculations can reduce regulatory burdens for credit unions.
WOCCU Urges Flexibility to FSB for COVID-19 Exit Strategies
WOCCU urged the Financial Stability Board to provide maximum flexibility to national-level regulators in the withdrawal of relief measures implemented during the COVID-19 pandemic. The comments came as part of the Financial Stability Board’s (FSB) consultative report on the exit strategies to support equitable recovery and address effects from COVID-19 scarring in the financial sector.
WOCCU noted its concern on the impact and potential increase in institutional stress that a rapid withdrawal of relief will cause. Due to the consequences of the pandemic, characterized by high levels of unemployment, the deterioration of specific sectors of the economy and the loss of individual purchasing power, and the impact the war in Ukraine, inflation, rising gas prices and other increasing costs, many financial entities may experience solvency, liquidity and other problems in the short and medium term. Depending on the reality of each country and individual credit unions, a generalized deterioration in the quality of financial assets could generate a systemic contagion effect in the financial system of a country, or within the credit union sector.
WOCCU has long urged national-level regulators to work closely with credit unions on providing reasonable and attainable plans to restore norms that existed prior to the pandemic. WOCCU will continue to work with international standard setters and national level regulators as the withdrawal of COVID-19 related relief measures are withdrawn.
A copy of the letter can be viewed here.
Why this matters to your credit union: The rapid withdrawal of COVID-19 regulatory relief measures can create significant stress for a credit union. Having flexibility will allow for an orderly return to norms present before the pandemic.
Basel Committee Meets to Discuss Basel Framework and Continuous Work on Climate-Related Risks
On July 14-15, 2022, the Basel Committee held a meeting to discuss several issues including, but not limited to: necessary measures to address climate-related financial risks, risks and vulnerabilities within the global banking system, additional empirical analyses on buffer usability and cyclicality in the Basel framework (the Committee plans to publish an evaluation report), and the approved results of the annual assessment exercise for globally systemically important banks (G-SIBs).
The global banking system is currently enduring inflation and other growth inhibiting factors, and the Committee met to discuss its effects. The Committee believes that banks have been resilient due the success of its Basel II reforms and implore banks and supervisors to "remain vigilant." Moreover, as a follow up to its interim evaluation report in 2021 on early lessons from the COVID-19 pandemic, the Committee plans to release a second report before the G20 Leaders' Summit, taking place in November 2022.
In addition to this report, the Committee approved the results of its annual assessment exercise for G-SIBs, which will be submitted to the Financial Stability Board before it publishes a list of G-SIBs for 2022. Most notably, the Committee discussed the assessment and development of “a suite of potential measures – spanning disclosure, supervisory and/or regulatory measures – to address climate-related financial risks to the global banking system.”
More information on the Basel Committee’s July 14-15 meeting is available here.
Why this matters to your credit union: The work plan of an international standard setting body such as the Basel Committee gives us insight into upcoming regulatory changes. Their ongoing focus on climate-related financial risks is notable as this represents a significant change and potential regulatory burden for credit unions.
Andrew T. Price, Esq.