A Time to Reflect
Volume 12, Number 12
December 28, 2022
Advocacy News You Can Use
It’s the last edition of the year. A time to reflect. This year I am reflecting on the history of the credit union movement. In particular how the cooperative model and credit unions have always shined as a solution to the economic struggles of those who have been marginalized or are in underserved communities. From the potato famine in Germany during the 1800’s where the modern credit union model is widely believed to have started, to the United States where the modern framework was adopted during the 1930’s as a response to the Great Depression. More recently we have seen remarkable work by credit unions in response to genocide in Rwanda, to post-earthquake recovery in Haiti and there are many, many others. Policy makers have always turned to our cooperative model as a way to address these economic struggles.
It is precisely that history of the credit union model that lends itself uniquely to being able to respond to disasters that gives me optimism for 2023. Yes, our industry and the world at large will struggle under rising inflation, the likely global recession, post pandemic related issues, and many other events that will bring hardship on many people. Times will be difficult, but if history is our guide, credit unions and the cooperative model will be needed as the catalyst for the recovery. We should take a moment this holiday season to reflect and celebrate this unique and special model.
WOCCU Urges Proportionality in FSB’s Cyber Incident Reporting Standard
The World Council of Credit Unions urged the Financial Stability Board to consider the impact of it’s proposed revisions to international standards trying to achieve greater convergence in cyber incident reporting. The comments came as part of the FSB’s consultation seeking to strengthen and harmonize frameworks surrounding operational resilience and the desire to increase efforts to reign in the effects of cyber incidents.
World Council agreed strongly with aspects of the consultation that are designed to get at the core roots and causes of cyber incidents. It acknowledged that the findings of the FSB that cyber incidents are growing in frequency and sophistication and the risk of contagion across borders and sectors due to the growing interconnectedness of the financial system is likewise increasing. It also noted that the FSB’s focus on increasing the sharing of timely and accurate information is well placed to create a system that is effective for incident response, recovery and promoting financial stability.
World Council expressed concerns, however, that the solutions often called for expensive and extensive regulatory requirements that are not tailored to the size, risk, and complexity of credit unions, noting that credit unions rarely operate on a cross-border basis, are small in size as compared to large banks, and therefore pose little risk of contagion or “spill-over” effects on other countries. World Council suggested that reporting be limited to simple, but actionable reporting and reporting that could be accomplished through established regulatory reporting without the need to create new bureaucracies.
The FSB is conducting this review at the request of the G20 and the ever increasing concern from regulators about the risk posed by cyber incidents.
A copy of the letter can be viewed here.
Why this matters to your credit union: Cybersecurity is an increasing concern by supervisors and national-level regulators. Regulations are correspondingly increasing in numbers and complexity. It is imperative that the rules continue to contemplate the credit union cooperative model.
Basel Committee Outlines 2023-2024 Work Programme
The Basel Committee on Banking Supervision approved its 2023-2024 Work Programme outlining its strategic priorities for its policy, supervision and implementation activities. The Committee will focus on the following key themes:
- Emerging risks and horizon scanning
- Digitalisation of finance
- Climate-related financial risks
- Monitoring and review of existing standards and guidance
- Implementation and evaluation
On digitalization the Committee will focus on the emergence of new entrants/suppliers in the banking system, the use of artificial intelligence and machine learning, big data and governance arrangements. The Committee will also conduct a deep dive analysis on the supervisory implications of Banking as a Service. Further, the Committee will continue to assess bank-related developments in cryptoasset markets, including the role of banks as stablecoin issuers, custodians of cryptoassets and broader potential channels of interconnections with the cryptoasset ecosystem as well as blockchain technology.
On sustainable finance, the Committee will continue to pursue a holistic approach to address climate-related financial risks to the global banking system. This will include work across all three pillars of regulation, supervision and disclosure. This includes considering whether additional regulatory measures are needed to address climate-related risks.
A copy of the work programme can be viewed here.
Why this matters to your credit union: The work plan of the Basel Committee gives us insight into which regulations will see changes over the coming year. This helps your credit union prepare and plan for potential changes to its operations.
Basel Committee Issues Prudential Treatment of Cryptoassets
The Basel Committee finalized its prudential standard on Cryptoasset Exposures which has been endorsed by the Committee’s oversight body, the Group of Governors and Heads of Supervision. The document sets out the final standard which the Committee has agreed to implement by 1 January 2025. The text will be incorporated into the consolidated Basel Framework shortly. After final incorporation, the standard will need to be adopted by national-level regulators before being applied to financial institutions.
The Basel Committee stated that “[t]he standard will provide a robust and prudent global regulatory framework for internationally active banks' exposures to cryptoassets that promotes responsible innovation while preserving financial stability.”
The standard requires financial institutions to classify cryptoassets on an ongoing basis into two groups:
- Cryptoassets that meet a full set of classification conditions covering tokenized traditional assets and cryptoassets and includes an effective stabilization mechanism;
- Unbacked cryptoassets and cryptoassets that fail to meet any of the classification conditions and pose additional and higher risk compated with group one, accompanied by a complicated capital treatment.
A copy of the finalized standard can be viewed here.
Why this matters to your credit union: Cryptoassets and digital currencies are rapidly emerging technologies. International standard setting bodies and national-level regulators are moving quickly to regulate in this area. The Basel Committee’s efforts in this area will have a direct effect on those institutions choosing to interact with cryptoassets either from an investment standpoint or through products and services they may offer. This standard will be used by national-level regulators as they promulgate rules for cryptoassets.
Andrew T. Price, Esq.