Faster and Cheaper for Whom?
Volume 11, Number 2
March 31, 2021
Advocacy News You Can Use
When I worked in a credit union, I oversaw the installation of new AML/CFT (or BSA) software for our credit union to use. The salesperson promised the installation would be seamless and had all the answers. Despite all of this, it was staggering to realize the amount of work needed that could not be anticipated. The software worked fantastic and was an improvement over the previous version. But still, the unexpected items were the ones that took so much time, effort and expense to resolve. New processes and procedures surrounding the use of the software had to be put in place, new forms needed to be developed, programming by IT, training, coordination with other departments, validation of data, establishing new audits and audit procedures, and the list goes on.
This month, there was a focus on reforms to payments systems. The Bank of International Settlements hosted the BIS Innovation Summit that explored many of the innovations in the payments area. Jerome Powell commented at a conference hosted by the Committee on Payments and Market Infrastructures (CPMI) about pushing the frontiers of payments towards faster, cheaper, more transparent and more inclusive cross border payments. I urge you to look at the replays and comments from those conferences to get insights into the upcoming changes in the payments landscape. Those potential changes are staggering.
But this brings me back to my initial comments. All these changes are important and even perhaps necessary. But that change, whatever form it may take, will undoubtedly bring our industry many of those unexpected compliance and operational challenges and costs, just like my software conversion from years ago.
Those costs will be disproportionately borne by credit unions, as compared to the larger financial institutions with vast resources. World Council will make sure proportionality will be considered as these changes are contemplated, making things. faster and cheaper for credit unions too!
WOCCU Applauds FATF’s Risk-Based/Proportional Approach in Guidance for AML/CFT Supervision
On March 4, 2021, the Financial Action Task Force published its Guidance for Applying a Risk-Based Approach to AML/CFT Supervision. According to FATF, the Guidance helps supervisors address a broad range of risks while using resources to tackle higher risk areas and, notable for World Council, an objective of the Guidance is to create a risk-based approach that supports financial inclusion by creating a regulatory environment that is “less burdensome on lower risk sectors or activities.” The Guidance further includes proportionality language throughout the document and advises that “Supervisors should also consider transparency, consistency and proportionality in applying remedial actions or sanctions.”
The guidance is comprised of three parts:
- “Part 1 – The high-level guidance on risk-based supervision, which explains how supervisors should assess the risks their supervised sectors face and prioritise their activities, in line with the FATF Standards’ risk-based approach.
- Part 2 – Strategies to address common challenges in risk-based supervision & jurisdictional examples, including examples of strategies for supervising non-financial businesses and professions and virtual asset service providers.
- Part 3 – Country examples from across the global network of supervision of the financial sector, virtual asset service providers and other private sector entities.”
World Council commends FATF’s risk-based and proportionate approach to AML/CFT supervision and looks forward to FATF’s continued efforts to improve financial inclusion.
Why this matters to your credit union: The risk-based approach, together with direction to national-level regulators, is key towards having any AML/CFT requirements properly tailored and right sized for credit unions. This reduces regulatory burden and allows for efficient operations when complying with AML/CFT requirements.
FATF President Supports Financial Inclusion at G20 Central Bank Governors and Finance Ministers Meeting
Financial Action Task Force President Marcus Pleyer spoke at the G20 Finance Ministers and Central Bank Governors Meeting on February 26, 2021. Pleyer commended the Italian G20 Presidency on their priorities regarding digitalization, and “people, planet and prosperity;” as well as their objective for “a resilient, inclusive and sustainable recovery.” Pleyer ensured that, “FATF stands ready to help [protect] our economies from illicit funds” and made a commitment to contribute to financial inclusion, digitalization in financial services and the G20’s Roadmap for Enhancing Cross-Border Payment.
Pleyer highlighted three of FATF’s achievements in digitalization and assured that FATF will continue to align these achievements with the G20 Presidency’s objectives. They include:
- FATF’s guidance on digital ID as an “important resource for ensuring access to essential and secure financial services—-especially during the pandemic.”
- FATF’s “adopted standards on virtual assets and stablecoins as the first international standard setter and the launch of a second review of the global implementation of these standards.” An update to the G20 will be provided during the year.
- FATF is currently analyzing “the opportunities and challenges of digital transformation for anti-money laundering,” with an offer to share insights from their work on data protection, privacy and responsible innovation.
Pleyer also expressed FATF’s commitment “to support the G20 through work on environmental and climate crime, such as illegal deforestation and illegal wildlife trade” and “ensuring transparency of beneficial ownership is critical for everything from a fair tax system to stopping money laundering.” Notably, Pleyer implored the G20 to implement FATF standards to combat illicit financial flow.
President Pleyer’s full speech can be found here.
Why this matters to your credit union: Credit unions play an important role in helping financial inclusion. When international standards setters place a priority on financial inclusion, this necessarily involves a discussion on proportionality, which allows appropriate rules for credit unions.
Financial Stability Board Publishes 2021 Key Priorities
In anticipation of the FSB’s virtual meeting with the G20 Finance Ministers and Central Bank Governors on February 25, 2021, Chair Randall K. Quarles drafted a letter outlining the FSB’s key priorities for 2021, which “address vulnerabilities directly related to COVID-19 and to increase resilience of non-bank financial intermediation (NBFI). It also aims to support strong, sustainable, and balanced growth in a post-COVID world.”
The FSB’s key priorities include:
- Addressing COVID-19 related vulnerabilities. Assessment of initial lessons learned from the COVID Event for financial stability; an April report on factors needed for an orderly unwinding of support measures; and publishing the final version of its evaluation of too-big-to-fail reforms for banks in April.
- Increasing the resilience of NBFI. Examining and addressing specific risk factors that contributed to amplification of the March 2020 market turmoil; enhancing understanding of systemic risks in NBFI; investigating policies to address these risks; and delivering policy proposals to enhance the resilience of money market funds in July for public consultation.
- Improving efficiency and access in cross-border payments. October progress report on the implementation of the FSB roadmap to enhance cross-border payments; and an update on regulatory and supervisory approaches to global ‘stablecoins’.
- Bettering our understanding of climate-related risks. Expansion on reporting on the financial stability implications of climate change; coordinating with other SSBs to promote globally comparable, high-quality and auditable standards of disclosure; and review of regulatory and supervisory approaches to address climate-related risks at financial institutions.
- Addressing other financial stability topics of ongoing importance. Includes: Enhancing central counterparty resilience, recovery and resolvability; exploring areas to harmonize cyber incident reporting; and ensuring a smooth transition away from LIBOR by end-2021 to more robust benchmarks.
More information on the FSB’s 2021 work program and key priorities can be found here.
Why this matters to your credit union: Paying close attention to key international standard setters allows a credit union to prepare for upcoming changes to regulations. This will assist a credit union with strategic planning and other decision making (i.e. purchases).
Andrew T. Price, Esq.