Where Are We Going?
Volume 12, Number 1
January 26, 2022
Advocacy News You Can Use
The famous rock musician, David Bowie, once said “I don’t know where I’m going from here, but I promise it won’t be boring.” Looking ahead to 2022 it certainly feels that way for credit unions from a regulatory perspective. We are still in the midst of the COVID-19 pandemic and dealing with all of the ever-changing challenges–including everything from how we operate within our physical locations to the effects on the balance sheet, changing regulations and many others. At the same time, we are looking at a regulatory agenda from the international standard setting bodies that has the potential to transform our industry.
Changes to the payments system, sustainable finance, digitization and cryptocurrencies are all high on the regulatory agenda. So, the challenge comes in trying to figure out the future of financial services and where we are going as an industry. It is somewhat like a Rubik’s Cube. We know there is a solution (and probably several solutions), but it may take a little bit of work to solve the puzzle. To that end, I would urge you to look at International Advocacy’s Global Regulatory Update for 2022, where we evaluate the issues surrounding the emerging regulatory themes. I hope it will give you some clues on how to prepare your credit union for the upcoming year. I promise you, it won’t be boring.
World Council International Advocacy Releases 2022 Global Regulatory Update
The International Advocacy team at the World Council of Credit Unions (World Council) recently released its 2022 Global Regulatory Update. The update highlighted the leading regulatory issues currently affecting credit unions, which include sustainable finance, proportionality, financial inclusion, anti-money laundering and countering the financing of terrorism (AML/CFT), payments and digitization. With sustainable finance as the feature of the report, it was noted that we should look forward to regulations that will encourage investments in environmentally responsible products, as well as related regulations that govern procedure, including disclosures and reporting requirements.
The update further underlines other key regulatory factors, including:
- Proportionality and financial inclusion: G20 and international regulators are beginning to home in on the value of proportionate standards, understanding that reduced regulatory burden will ultimately help to address concerns related to financial inclusion.
- AML/CFT: AML/CFT regulations continue to place regulatory and compliance burdens on credit unions; however, inter-governmental bodies such as the Financial Action Task Force (FATF) are in line with objectives to alleviate these burdens in order to support financial inclusion by providing a risk-based and proportionate approach to regulation.
- Payments: Payment reforms are a double-edged sword, bringing both disruption and opportunities to credit unions.
- Digitalization: Evolving regulations surrounding digitization will most likely affect credit unions down the line. As credit unions become more technologically advanced, regulations may prove to be overburdensome; and eventually, credit unions that have not advanced in the digital arena may still find themselves subject to digitization requirements. In the course of time, credit unions will presumably need to jump on the digital bandwagon.
The entire 2022 Global Regulatory Update is available here; and episode nine of the Global Credit Union Podcast, featuring the Update’s authors, World Council Senior Vice President of International Advocacy and General Counsel Andrew Price and Assistant General Counsel of International Advocacy Panya Monford, is available here.
Why this matters to your credit union: This edition of the Global Regulatory Update will alert you to upcoming regulatory changes that will affect all aspects of your credit union, including operations, regulatory requirements and even possible disruptive events in the industry.
BIS CPMI report Highlights Rapid Development of Retail Fast Payments
The implementation of retail fast payment systems (FPS) across the globe is continuing at a rapid pace, with significant implications for incumbent real-time gross settlement (RTGS) systems, according to a report published by the Bank for International Settlements' Committee on Payments and Market Infrastructures (CPMI).
Developments in retail fast payments and implications for RTGS systems takes stock of recent developments in retail FPS, discusses the implications for RTGS systems and examines the role of central banks in these systems.
Based on a survey of CPMI member jurisdictions, the report highlights the following findings and implications:
- global implementation of fast payments is continuing at a rapid pace;
- the use of a given FPS (i.e., adoption rate) is generally low in the early stages of its implementation, although some recent FPS have been more rapid in their take-up;
- FPS can have significant implications for the operations and services of RTGS systems in the same jurisdiction, such as the modification of access criteria and extension of operating hours;
- FPS are increasingly settling obligations between banks and, where relevant, non-bank FPS participants on a gross (i.e., payment-by-payment) basis in real time;
- most jurisdictions have either adopted or are moving towards ISO 20022 as the messaging format for their FPS; and
- while differences in approaches remain, central banks tend to play important roles in facilitating the operations of FPS.
The report also highlights that designing, implementing and operating an FPS is complex. Challenges include ensuring high system availability (e.g., during nights and weekends) and reliability requirements.
A copy of the release can be viewed here.
Why this matters to your credit union: Changes to the payments systems are occurring rapidly with the development of new technologies and changes to regulatory requirements. This will help your credit union understand the regulatory changes that are occurring.
Digital currencies and the soul of money
Agustín Carstens, General Manager of the Bank for International Settlements (BIS), outlined his view on the plausible scenarios for the future of money at the Goethe University's Institute for Law and Finance (ILF) conference on "Data, Digitalization, the New Finance and Central Bank Digital Currencies: The Future of Banking and Money.”
Carstens offered three plausible scenarios for the future of money.
- In the first, big tech stablecoins compete with national currencies and against each other too, fragmenting the monetary system.
- The second relates to the elusive promise of crypto and decentralized finance, or "DeFi", which claims to offer a financial system free from powerful intermediaries, but may actually deliver something very different.
- The third realizes the vision of an open and global monetary and financial system that harnesses technology for the benefit of all.
Carstens urged development of the third vision noting the design of money has consequences that concern all of society: the integrity and stability of money and payments, market concentration, consumer rights and efficiency. Hence, he urged central bankers to work with other public authorities and private stakeholders to achieve this vision. He urged innovation in a sound, sustainable way, harnessing the benefits of digital technology in a way that is consistent with our shared values. The goal of ensuring that the financial system builds on the existing governance of money, serves the public interest and works cooperatively with the private sector was of paramount importance.
A copy of the entire speech can be found here.
Why this matters to your credit union: This speech by the General Manager of the BIS shows the direction on how international standard setters view their role in the development of cryptocurrencies. How money will work in the future will have a direct impact on credit union’s operations.
Andrew T. Price, Esq.