Basel Committee Reinforces the Need for Proportionality
Volume 9, Number 8
December 9, 2019
Basel Committee Reinforces the Need for Proportionality
The Basel Committee on Banking Supervision (Basel Committee) and the Basel Consultative Group (BCG) issued a joint statement supporting the use of proportionality in implementing the Basel Framework. WOCCU applauds this joint statement as it has been urging further guidance directing national-level authorities to tailor Basel standards to the size, complexity and risk of a credit union or other community-based mutual depository institutions. National-level regulators often tend to use the highest standard which often times are not appropriate or are excessive for credit unions. This joint statement reinforces the need to use the built-in proportionality contained in the Framework and not use the Basel Framework as a floor.
A copy of the joint statement can be viewed here.
Bank for International Settlements Enters the Environmental Finance Ring
In response to a growing demand for climate-friendly investments, the Bank for International Settlements (BIS) launched an open-ended green bond fund for central bank investments. This green bond fund initiative will aid central banks in managing their reserves by incorporating environmental sustainability objectives.
The open-ended fund promotes green finance by pooling BIS client assets through a fund and creating “sizeable climate-friendly investments” using best market practices. An advisory committee composed of a global group of central banks was created in support of the fund. “The initiative is part of the BIS's broader commitment to supporting environmentally responsible finance and investment practices, in line with the Bank's participation in the Central Banks and Supervisors.”
The Network for Greening the Financial System, First Comprehensive Report, was published in April 2019, by eight central banks and supervisors who established a Network of Central Banks and Supervisors for Greening the Financial System (NGFS). The report states that NGFS members acknowledge that “climate-related risks are a source of financial risk. It is therefore within the mandates of central banks and supervisors to ensure the financial system is resilient to these risks.” NGFS now includes 34 central banks and supervisors, and five observers, including BIS; and recently, the Basel Committee agreed to join NGFS as an observer, indicating the relevance and importance of environmental finance issues for years to come.
 See, BIS 26-09-2019 press release at: https://www.bis.org/press/p190926.htm
Anti-money Laundering Action Plan Announced by EU Council
On October 10, 2019, the Council of the EU's Economic and Financial Affairs Council (ECOFIN), met to discuss key issues including anti money laundering matters and reforms. The Economic and Financial Affairs Council is set to adopt conclusions on the implementation of the anti-money laundering (AML) action plan that was presented last December. The Commission, in addressing shortcomings of the current AML policies, is pushing agreed upon reforms including: the 5th revision of the AML directive; new CRD5 capital requirements for banks and the revised European system of financial supervision; enhancing the cooperation and exchange of information between competent authorities; and further harmonizing AML rules by converting the current AML directive into concrete regulations, in addition to giving an EU body specific AML supervisory tasks.
The 5th directive on AML and terrorist financing compels the identification of third country jurisdictions with strategic deficiencies in the management of anti-money laundering and counterterrorist financing regimes, and that pose significant threats to the EU financial system. Accordingly, Ministers discussed a methodology for constructing this list and plan to release a new draft list in the form of a delegated act. The “Commission non-paper on key elements of a refined methodology for identifying high-risk third countries for AML purposes” can be found here. WOCCU and ENCU will monitor these issues closely as they move to the process to determine any adverse impact on credit unions.
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.
WOCCU Urges IADI to Consider Credit Union Deposit Insurance Schemes
WOCCU urged the International Association of Deposit Insurers (IADI) to consider credit unions when establishing their public policy objectives. These comments were submitted in response to the IADI’s draft Guidance Paper, ‘Public Policy Objectives for Deposit Insurance Systems’. WOCCU stressed the contributions credit unions have made to financial inclusion through the support of the under-banked communities within their respective jurisdictions and asserted that a proportional approach to deposit insurance PPOs will aid in upholding IADI’s primary principals. WOCCU supported IADI’s primary principles of deposit insurance which are to protect depositors and contribute to financial system stability. Comment Letter to IADI on ‘Public Policy Objects for Deposit Insurance Systems’ can be viewed here.
Financial Action Task Force Issues Guidance on Best Practices on Beneficial Ownership for Legal Persons
The Financial Action Task Force (FATF) has released its guidance on Best Practices on Beneficial Ownership for Legal Persons. It their executive summary, FATF states that: "The results of FATF Mutual Evaluations indicate that jurisdictions find it challenging to achieve a satisfactory level of transparency regarding the beneficial ownership of legal persons." The guidance seeks to provide solutions to the implementation of FATF Recommendations on AML/CFT. According to the Guidance, "countries should use one or more of mechanisms (the Registry Approach, the Company Approach and the Existing Information Approach) to ensure that information on the beneficial ownership of a company is obtained by that company and available at a specified location in their country; or can be otherwise determined in a timely manner by a competent authority."
The guidance also seeks to address the favorable use of a multi-pronged approach to Beneficial Ownership; the keys to an effective system; latest developments and case examples; and suggestions for "ensuring authorities can access getting information on beneficial ownership of overseas entities".
The guidance can be found here.
Basel Committee on Banking Supervision Publishes Guidelines on AML/CFT Supervision
The Basel Committee on Banking Supervision (BCBS) has published their consultation, Introduction of Guidelines on Interaction and Cooperation Between Prudential and AML/CFT Supervision, in order to amend their previously published guidelines entitled, Sound Management of Risks Related to Money Laundering and Financing Terrorism. The guideline aims to outline methods to implement mechanisms that will facilitate cooperation between prudential and AML/CFT supervisors, including: recommendations and principles for information exchange on authorization procedures of banks, on-going supervision, and enforcement actions. “The proposed changes to the Sound management of risks related to money laundering and financing of terrorism include a new provision in "The role of supervisors" section that recommends establishing an effective cooperative system and a supplementing annex with specific recommendations and descriptive examples to facilitate supervisory cooperation.”
WOCCU is analyzing this proposal to ensure that the role of crdit unions is adequately contemplated in the guidelines and that appropriate direction to national-level regulators to consider proportionality when implementing the guidelines is provided. BCBS is accepting coments on the consultation until February 6, 2020 and the document can be found here.
Andrew T. Price, Esq.
VP of Advocacy
World Council of Credit Unions (WOCCU)
99 M St., SE, Washington, DC 20003 USA
Office: +1-202-843-0704| Mobile: +1-850-766-5699
firstname.lastname@example.org | www.woccu.org
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