It’s a Celebration
Volume 13, Number 6
July 26, 2023
Advocacy News You Can Use
This issue of the Telegraph was drafted and distributed in the midst of the World Credit Union Conference (WCUC 2023) in Vancouver, Canada. With well over 60 countries present at the event, the amount of collaboration and communication that is taking place is astounding. I personally am learning something new every hour about a new regulatory issue in a particular country or a new approach that a credit union is using to solve a problem. It really is wonderful to partake in the return of in-person conferences and experience face to face communication. There really is something special about being able to sit or stand across from someone and have a conversation. It is so much more personal and restores humanity bac into interacting with one another.
That aspect alone is worth a celebration, but what has struck me more at the conference is the true spirit of credit union collaboration that is on display at this conference. Stories of members working together, credit unions working together, associations working together, vendors working together, our countries working together… the list goes on. We often get bogged down here on the Telegraph, complaining about regulatory burdens or new rules that are unfair or unworkable, but sometimes we need to also step back and look at the tremendous amount that we, collectively as an industry, have accomplished and are accomplishing on behalf of our members. This conference is bringing that to light. That special cooperative model that works for our members is truly something that needs to be celebrated.
Basel Committee Reaches Provisional Agreement on Implementation of Basel III Reforms Including Enhanced Proportionality Rules
After negotiations between the Council presidency and the European Parliament, the Basel Committee has reached a provisional agreement on the implementation of Basel III regulatory reforms, specifically involving amendments to the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD). The Basel Committee hopes these reforms will strengthen the resilience of banks operating within the European Union.
Negotiations also led to additional agreements related to the provisional agreement which include implementation of the “output floor, limiting banks' variability of capital levels computed by using internal models, and the appropriate transitional arrangements to allow sufficient time for market players to adapt.” They also agreed on improvements to credit risk, market risk and operational risk; enhancement to proportionality rules, specifically for small and non-complex financial institutions; a transitional prudential regime for crypt assets; amendments to improve ESG risk management, and harmonization of other frameworks to strengthen bank resiliency.
More information on the provisional agreement reached on Basel III reforms is available here.
Why this matters to your credit union: The inclusion of proportionality of the Basel III framework at the national level (in this case the EU level) is precisely what needs to take place by supervisory authorities. Proportionality is built into the framework but is sometimes overlooked when being implemented, a step that is missed and can be problematic for credit unions.
IFRS Updates Educational Materials on Climate-Related Matters
On June 26, 2023, the inaugural IFRS Sustainability Disclosure Standards were released. Specifically, the International Sustainability Standards Board (ISSB) issued IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures; and in response, the IFRS has updated its Educational Material: Effects of Climate-Related Matters on Financial Statements. The educational material helps companies comprehend how to report on “material” climate-related matters in their financial statements. While the IFRS Accounting standards (developed by the IASB), do not clearly refer to climate-related matters, consideration of material climate-related matters is required by the IASB’s standards. The IASB is also working on a project on Climate-Related Risks in Financial Statements, to improve upon a financial statements’ ability to convey climate-related risks. The IASB is also considering whether to include “sustainability-related risks and opportunities beyond those related to climate.”
Why this matters to your credit union: Various disclosures that are climate-related are now being finalized at the international level. National-level authorities are beginning to translate these into their respective rulebooks and will ultimately be applied to credit unions. This evidences another step in this cycle.
FSB Publishes Annual Progress Report on Roadmap Addressing Climate-Related Financial Risks
On July 13, 2023, in response to the finalization of the International Sustainability Standards Board's (ISSB) global sustainability disclosure standards, the Financial Stability Board released its annual progress report on the FSB Roadmap for Addressing Climate-Related Financial Risks, which outlines advancements achieved in support of the roadmap that were made not only by the FSB, but also standard-setting bodies and other international organizations. The progress report further highlights areas that need additional consideration, as well as updates on Roadmap action items. On July 17-18 in a meeting in Gandhinagar, India, the progress report will be delivered to the G20 Finance Ministers and Central Bank Governors for review.
The FSB has made it clear it is in support of the ISSB's final standards. Finalization has prompted a handover in the responsibility to monitor progress made with firm disclosures. Monitoring responsibilities will shift from the Task Force on Climate-Related Financial Disclosures (TCFD), which was created by the FSB to develop recommendations on effective disclosures, to the ISSB in 2024. According to the FSB, there is progress in all four blocks of the Roadmap, including firm-level disclosures, data, vulnerabilities analysis, and regulatory and supervisory practices and tools.
More information on the FSB’s work on addressing climate-related financial risks is available here.
Why this matters to your credit union: This is yet another international standard setting body coalescing around the development of climate and sustainable disclosures as these regulatory frameworks are being developed.
Andrew T. Price, Esq.