Are Credit Unions the Michael Jordan of the Financial World?
Volume 10, Number 5
May 27, 2020
Advocacy News You Can Use
The recent documentary airing in the United States shed some light on Michael Jordan’s journey to six championships in basketball as well as arguably to being one of the greatest basketball players ever. One of the common threads throughout the documentary is how Michael Jordan always tried to turn a negative situation into a positive. He tells of the story in high school when a coach cut him from the high school team. He used that snub, of course, to propel him to greatness.
Earlier this month we were fortunate to hear from Sohini Chowdhury, Director at Moody’s Analytics, who shared wonderful insight into how the COVID-19 crisis is affecting credit unions. She told us that credit unions are struggling with loss return estimates that are turning out to be extremely high; that the outlook continues to deteriorate; and that a slow rebound and global recession is likely to occur. This information is extremely helpful for credit unions to prepare for the future. I urge you to watch the full webinar in its entirety on the WOCCU YouTube Channel.
But the information is also somewhat troubling and—to some extent—I feel as if the “coach” is passing us over for the team and not acknowledging the inherent potential of credit unions to take us through the troubled times. Then I look around and I see credit unions adjusting their products to tailor them to the immediate health and financial needs of their members. I see their digitization efforts increasing to better serve members during the crisis. I see Australia leading the way with a standard setting digital payments platform—and I see citizens seeking credit unions for safety with their deposits. Of course, there are countless stories all over the world turning a negative situation into a positive.
There may not be a shiny trophy after this is all done, or six rings waiting for us on the other side of the crisis, but I know I won’t be that “coach” who overlooked the greatness of credit unions.
Credit Union COVID-19 Advocacy Guide Released
In order to assist credit unions worldwide with advocacy with their national level regulators, WOCCU is pleased to make available its Advocacy Insights: Advancing the Credit Union Cause During a Global Pandemic. This guide is designed to give some practical steps to help credit unions demonstrate why policymakers should allow credit unions to be a part of the solution in addressing worldwide problems arising as a result of the COVID-19 pandemic. The credit union cooperative model has demonstrated over and over again the ability to help its members traverse numerous disasters over the years.
A copy of the guide is available here.
Additionally, the guide is available in Spanish here.
Why this matters to your credit union: Advocacy with your prudential regulators during the COVID-19 pandemic can be critical to educating policy makers on the correct path to take to provide necessary relief for credit unions. This guide helps share some tips and strategies for obtaining optimal results.
FATF Issues Guidance on COVID-19 AML/CFT Risks
The Financial Action Task Force (FATF) issued a paper identifying challenges, best practices, and policy responses to the unprecedented global challenges emerging as a result of the COVID-19 pandemic. Increased COVID-19 related crimes, including: fraud; cybercrime; misdirection or exploitation of government funds or international financial assistance are all creating new avenues of illicit crimes.
Emerging risks and vulnerabilities are identified in the paper that could result in criminals finding ways to:
- Bypass customer due diligence measures.
- Increase misuse of online financial services and virtual assets to move and conceal illicit funds.
- Exploit economic stimulus measures and insolvency schemes as a means for natural and legal persons to conceal and launder illicit proceeds.
- Increase use of the unregulated financial sector, creating additional opportunities for criminals to launder illicit funds.
- Misuse and misappropriation of domestic and international financial aid and emergency funding.
- Exploit COVID-19 and the associated economic downturn to move into new cash-intensive and high-liquidity lines of business in developing countries.
FATF also conducted its first webinar on this topic that can be viewed here. A copy of the paper can be viewed here.
Why this matters to your credit union: COVID-19 has given rise to an increase in numerous schemes designed to defraud your credit union or your members. Staying on top of the most recent trends will help you protect your institution and your members, as well as assist you with examinations from your regulator.
Basel Committee Releases Survey Regarding Climate Related Financial Risk Initiatives
The Basel Committee published its, “Climate-related financial risks: a survey on current initiatives,” summarizing members’ existing regulatory and supervisory initiatives on climate-related financial risk. The Basel Committee created the Task Force on Climate-related Financial Risks (TFCR) to improve global financial stability by performing “a stocktake of members’ existing regulatory and supervisory initiatives on climate-related financial risks;” initiating “a set of analytical reports on climate-related financial risks, including a literature review, and reports on the transmission channels of such risks to the banking system as well as on measurement methodologies” and developing “effective supervisory practices in order to mitigate climate-related financial risks.”
The survey suggests that:
- The majority of Basel Committee members consider it appropriate to address climate-related financial risks within their existing regulatory and supervisory frameworks.
- An overwhelmingly large share of members have conducted research related to the measurement of climate-related financial risks, while a number of members identified operational challenges in assessing climate-related financial risks such as data availability, methodological challenges and difficulties in mapping of transmission channels. A majority of the members have raised risk awareness with banks through different channels and many banks are disclosing information related to climate-related financial risks to some extent.
- Approximately two-fifths of members have issued, or are in process of issuing, more principles-based guidance regarding climate-related financial risks. However, the majority of members have not factored, or have not yet considered factoring, the mitigation of such risks into the prudential capital framework.
Why this matters to your credit union: Understanding the impact of climate-related risks and how regulators are viewing this risk will help you adjust the management of your portfolios, your underwriting and asset liability management. How regulators are including these risks in their supervisory frameworks is a new and evolving area and one that will likely lead to increased regulatory burden for credit unions.
Andrew T. Price, Esq.