A Far Cry…
Volume 13, Number 4
April 26, 2023
Advocacy News You Can Use
“One day I feel I’m ahead of the wheel, and the next it’s rolling over me”, wrote the lyricist for the rock band Rush in the song Far Cry. It feels that way for those of us trying to keep up with all the ever-changing regulations in the financial sector. It’s even harder for those working in a credit union to implement all the never-ending changes. Even a withdrawal of a rule or regulation can create operational burdens. The ups and downs seem to keep coming. One day we make progress obtaining and implementing proportionality, the next day we are given notice of numerous changes coming our way.
It feels like the wheel is rolling over us while writing this edition of the Telegraph. We have changes coming at us on the AML/CFT front from the Financial Action Task Force concerning our obligations with respect to the beneficial ownership of legal entities, the Basel Committee (and others) is taking stock on changes to react to the recent banking crisis, and the rules surrounding climate and sustainable finance look like a tsunami descending upon us. That doesn’t even touch on changes to payments, cryptoassets, and many other regulations.
While it may be a far cry from where we ought to be, that same song also brings us optimism with the lyric “I can get back on”. Credit unions will shine within that optimistic look forward, because at the end of the day, we know it’s all about our members. We’ll get ahead of the wheel every time for them.
FATF Finalizes Guidance On Beneficial Ownership of Legal Persons
The Financial Action Task Force finalized its guidance to provide tougher global beneficial ownership standards in its Recommendation 24 by requiring countries to ensure that competent authorities have access to adequate, accurate and up-to-date information on the true owners of companies. This guidance will help implement the revised Recommendation 24. If implemented properly by national-level authorities, it will provide efficient and rapid access to the information for use by financial institutions including credit unions to help with their AML/CFT responsibilities with respect to legal entities.
WOCCU advocated for this approach which should help ease regulatory burdens associated with opening accounts and doing business with legal entities. The guidance will help countries identify, design and implement appropriate measures in line with the revised Recommendation 24 to ensure that beneficial ownership information is held by a public authority or body functioning as a beneficial ownership registry, or an alternative mechanism is readily available for use by credit unions. Further, the Standard will help prevent the organized criminal gangs, the corrupt and sanctions evaders from using anonymous shell companies and other businesses to hide their dirty money and illicit activities.
A copy of the finalized standard can be viewed here.
Why this matters to your credit union: Obtaining the identity of the beneficial owner of a legal entity is often a barrier to opening accounts to serving small businesses. Improvements in this area can reduce regulatory burden and allow credit unions to better serve their members.
Basel Committee Discusses Recent Bank and Market Developments
The Basel Committee on Banking Supervision met in Hong Kong to take stock of recent developments and risks in the global banking system along with discussing a range of policy initiatives.
In particular the Committee noted that the risks of high inflation, lower growth and geopolitical tensions are posing risk management challenges to banks. Years of unprecedentedly low interest rates underpinned the build-up of leverage across household and corporate sectors. As most central banks raise interest rates to combat inflation, borrowers are now facing sharply rising debt service burdens. A broad-based repricing in asset markets could also expose banks to additional risks.
The Basel Committee directed banks and supervisors to be vigilant to the evolving outlook to ensure that the global banking system is resilient. In addition, the Committee agreed to take stock of the regulatory and supervisory implications stemming from recent events, with a view to learn lessons.
On other related topics the Basel Committee discussed the following policy initiatives:
- Climate-related financial risks
The Committee discussed its work related to the development of a Pillar 3 disclosure framework for climate-related financial risks. The purpose of the framework is to provide additional bank disclosures about the prudential risks. This framework would complement, and be interoperable with, parallel disclosure initiatives under way by the International Sustainability Standards Board and other authorities. The Committee will issue a consultation paper on the proposed disclosures at a future date.
Following the publication of a prudential treatment for banks' exposures to cryptoassets last year, the Committee approved a workplan to continue to assess and mitigate risks from cryptoassets to the global banking system. This includes a set of targeted reviews of the prudential treatment, including the treatment of permissionless blockchains and the eligibility criteria for "Group 1" stablecoins. The Committee will also continue to monitor banks' cryptoasset activities and exposures, including their role as potential issuers of stablecoins and tokenised deposits, custodians of cryptoassets and interconnections with other nodes of the cryptoasset ecosystem.
- Implementation of Basel III reforms
The Committee members unanimously reaffirmed their expectation of implementing all aspects of the Basel III framework in a full and consistent manner, and as soon as possible, in order to further enhance the resilience of the global banking system and provide a regulatory level playing field for internationally active banks.
A copy of the press release can be viewed here.
Why this matters to your credit union: These emerging issues discussed by the Basel Committee are a precursor to upcoming changes in regulation. Insight into these activities will help a credit union prepare for pending regulatory changes.
BIS's Project Nexus Prototype Successfully Links Eurosystem, Malaysia and Singapore Payments Systems
The BIS Innovation Hub Singapore Centre and partners announced the successful connection of the test versions of three established IPS using the Nexus model and outlined the next phase of the project to work on the real-world potential of a multilateral network that could be scaled up across more countries. The press release noted the following:
- To enhance cross-border payments, the BIS Innovation Hub Singapore Centre developed the Nexus concept of a first-of-its-kind multilateral network connecting multiple domestic instant payment systems (IPS).
- Nexus prototype successfully connected the test IPS of the Eurosystem, Malaysia and Singapore, allowing payments to be sent across the three using only mobile phone numbers.
- In the next phase, BIS and the central banks of Indonesia, Malaysia, the Philippines, Singapore and Thailand will jointly work towards connecting their domestic IPS through Nexus.
The Nexus report provides details on the early experiments and technical specifications for the multilateral interlinking of payment systems. The success of the experiment paves the way for the BIS Innovation Hub Singapore Centre to explore the practical applications of a distributed multilateral network.
This efforts supports the G20 priorities of improving the cost, speed, access and transparency of cross-border payments by connecting domestic IPS across multiple countries through a standardized and multilateral approach. The Innovation Hub's Singapore Centre is now collaborating with these central banks to facilitate their design processes, as they aim to connect their domestic payment systems.
This development is significant for credit unions in that it demonstrates efforts to transform the payments space and can have a profound effect on credit unions’ participation and engagement in the payments space.
Why this matters to your credit union: The international standard setting bodies and the G20 have been focused on achieving faster, cheaper, more transparent and more inclusive cross-border payments systems. This shows significant developments in this area, giving insight into transformations forthcoming in payments systems. Credit unions can use this to prepare for future changes and utilize it in strategic planning.
IASB Initiates Project to Consider Climate-related Risks in Financial Statements
The International Accounting Standards Board (IASB) has added a project to its work plan to explore whether and how companies can provide better information about climate-related risks in their financial statements.
The initiation of the project responds to feedback received from the IASB’s recent Agenda Consultation for the IASB to enhance the reporting of climate-related risks in financial statements.
In undertaking the project, the IASB will consider the work of the International Sustainability Standards Board (ISSB) to ensure any proposals work well with IFRS Sustainability Disclosure Standards and that any information required by the two boards would be complementary. The first two IFRS Sustainability Disclosure Standards are due to be issued by the end of Q2 2023.
The project was discussed at a recent IASB meeting noting that the project will research to what extent the educational material published in 2020 is helping companies reflect the effects of climate‑related risks in the financial statements, and what actions, if any, the IASB could take to further improve information about these matters.
World Council recently released its Guide to International Sustainable Finance Regulations, “What Credit Unions Should Know About Sustainable Finance”, a guide to help credit unions understand many of the international standards and emerging regulatory frameworks surrounding climate-related and sustainable finance issues wherein it discusses recent developments in disclosures by the ISSB.
A copy of the press release can be viewed here.
Why this matters to your credit union: This is significant in that it shows the rapid development of work implementing climate and sustainable finance related reporting requirements. With the accounting standards being finalized, regulatory requirements will shortly follow and bring significant changes to credit union operations, reporting, governance and products.
Andrew T. Price, Esq.