Giving Thanks for Proportional Regulations
Volume 10, Number 11
November 25, 2020
Advocacy News You Can Use
It is difficult to write a column for a global audience and make an analogy that can be understood by all audiences around the world. In the United States, we are about to celebrate Thanksgiving. I considered making a reference to it here, but with some research, I quickly realized not all countries celebrate this holiday and the reference will probably get lost in translation. Australia, Brazil, Grenada, Liberia, Netherlands (one city), Philippines and St. Lucia have similar celebrations, but not necessarily on the same day. Other countries have “harvest” festivals that are similar, also with differing origins and times. So, making a reference to Thanksgiving really does not work for the entire audience of this newsletter.
It really reminds me of financial institution regulations. Not all of them work for all types of financial institutions. This is why WOCCU regularly emphasizes including “proportionality” in almost all international standards, so that regulations can be tailored to the size, risk and complexity of a credit union.
To that end, I urge you to watch our recent webinar put on by WOCCU’s COVID-19 Response Committee where representatives from the Financial Action Task Force discussed anti-money laundering (AML) risks. There is a good discussion on how AML/CFT regulations at the international level include flexibility within the framework so that these requirements can be tailored for credit unions. Also, look at the recent amendments from FATF on proliferation financing (story below). It includes direction from FATF to apply measures proportionate to the risk of the relevant institutions as well as financial inclusion guidance.
Here’s to a happy holiday season for all of us—and more streamlined regulations in 2021.
WOCCU-Recommended Proportionality Included in FATF Proliferation Financing Guidance
The Financial Action Task Force adopted amendments to Recommendations 1 and 2 and their Interpretive Notes that require countries and the private sector to identify and assess the risks of potential breaches, non-implementation or evasion of the targeted financial sanctions related to proliferation financing, as contained in FATF Recommendation 7, and to take action to mitigate these risks, as well as to enhance domestic coordination.
WOCCU commented on these amendments and urged clear direction to national-level regulators to tailor these regulations proportionately for credit unions.
FATF responded by encouraging countries to implement the new requirements in a manner that is consistent with these objectives and apply measures proportionate to the risk of the relevant institutions.
Further, FATF reiterated its strong support to financial inclusion goals. Ensuring that financially excluded or under-served groups have access to regulated financial or non- financial services without compromising the measures that exist for the purpose of AML/CFT/CPF is a key policy priority.
A copy of the press release and corresponding amendment can be viewed here.
Why this matters to your credit union: The inclusion of specific direction to national-level regulators will allow any regulatory burden to be tailored appropriately for credit unions.
FSB Letter to G20 Notes Continued Financial Uncertainty
A letter from the Financial Stability Board (FSB) Chair, Randal K. Quarles, to G20 Leaders ahead of their November Summit, notes that while financial conditions have continued to ease, the global economic outlook remains uncertain and financial stability risks are elevated. In his letter, the FSB outlines three responses to financial stability vulnerabilities resulting from COVID-19 as follows:
- Coming to a shared diagnosis – the letter notes that the market turmoil in March manifested itself differently in countries around the world. Emerging market economies experienced severe strains in offshore US dollar funding markets; whereas some advanced economies experienced significant outflows from certain types of investments. The FSB’s holistic review assesses the initial stages of the COVID-19 Event as having exposed a number of common strengths and vulnerabilities across the global financial system.
- The need for continued vigilance and policy support – as the challenges posed by the COVID Event have by no means dissipated yet. Persistent economic uncertainty and still elevated financial stability risks call for continued vigilance. The FSB continues to carefully monitor for signs of emerging vulnerabilities. The protracted nature of the COVID pandemic requires continued efforts to support financial resilience and ensure a sustained flow of financing to the real economy.
- Enhancing financial sector resilience going forward – COVID-19 has provided an opportunity to further assess financial stability risks and to refine measures put in place after the 2008 global financial crisis, where appropriate. These lessons can help strengthen financial sector resilience to better prepare for future shocks.
A copy of the letter and other responses to the COVID-19 crisis can be viewed here.
Why this matters to your credit union: This is a clear indication that the Financial Stability Board is closely watching the fallout from the COVID-19 crisis. This could signal further reforms or relief measures that may affect credit unions.
WOCCU Urges IASB to Expand IFRS for SMEs Standard
World Council of Credit Unions urged the IASB to allow a greater use of the IFRS for SMEs Standard and, in particular, to make it easier for credit unions to utilize the standard. The comments came as a part of the Request for Information on the IFRS for SMEs Standard issued by the International Accounting Standards Board.
In particular, WOCCU noted that allowing some credit unions—especially smaller institutions and those in developing countries— would help limit excessive compliance burdens on small credit unions and reduce the burden on those smaller financial institutions in developing countries. WOCCU urged the IASB to allow expressly the ability to state financials in conformity with the IFRS for SMEs standard, noting that this could be accomplished with little effort and without defeating the purpose of the standard.
A copy of the letter can be viewed here.
Why this matters to your credit union: Allowing credit unions to formally use the IFRS for SMEs standard will reduce the regulation imposed by IFRS 9/CECL and will reduce the impact to a credit union's balance sheet.
Andrew T. Price, Esq.