Basel Committee Releases Final Basel III Capital Disclosures Standard - July 9, 2012

Number 6
July 9, 2012

The past month has seen an early summer deluge of new standards and other information issued by international standard setting bodies and regulators. This edition of World Council's Telegraph addresses recent developments regarding Basel III regulatory capital standards, the U.S. Internal Revenue Service's (IRS) implementation of FATCA, the Financial Stability Board's initiative to establish a global numbering system for credit unions and other parties to "financial transactions," and new draft International Financial Reporting Standards.

Basel Committee Releases Final Basel III Capital Disclosures Standard

On June 26, 2012, the Basel Committee on Banking Supervision released the final version of its guidance on a uniform Basel III regulatory capital disclosure form for banking institutions. These disclosures must be applied to internationally active commercial banks by national authorities before June 30, 2013, and some national or provincial credit union regulators may use the same or similar disclosures to show credit unions' regulatory capital positions.

World Council filed a comment letter with the Basel Committee on Feb. 17, 2012, in response to its public consultation on the capital disclosure. We requested clarification that cooperative shares can be immediately reclassified as "Common Equity Tier 1" (CET1) capital, the most desirable form of capital under Basel III, even if the shares were not CET1-compliant to begin with.

Basel III allows credit union "core" regulatory capital shares that do not meet Basel III's CET1 capital definition to be initially included in CET1 capital but then be slowly written off over 10 years (i.e., between 2013 and 2022). The draft capital disclosure template, however, did not address whether this write-down could be reversed and, if so, over what time period.

As we requested in our comment letter, the Basel Committee stated in the final version of the document that the capital disclosure be revised immediately "whenever a new capital instrument is issued and included in capital and whenever there is a redemption, conversion/write-down or other material change in the nature of an existing capital instrument."

This means that a write-off of credit union capital shares from CET1 capital should be reversible immediately if the credit union adjusts the shares' terms and conditions to become CET1-compliant.

U.S. IRS Releases FATCA Registration Instructions, Forms

In early June, the IRS released instructions for how non-U.S. credit unions and other "foreign financial institutions" that do not fall within the Foreign Account Tax Compliance Act's (FATCA) small bank exemption would be required to register with the IRS using an online system. The draft online registration instructions can be accessed here.

The IRS has also released a draft version of its revised "Form W-8BEN-E " for legal entities, which is the form that would be used by non-U.S. credit unions to indicate whether or not they are exempt from FATCA. The IRS has also released a similar draft "Form W-8BEN " that would be used by natural persons to indicate their FATCA status.

You can access World Council's comprehensive summary of FATCA here, our comment letter to the IRS here, and information about World Council's oral comments made at the IRS's FATCA public hearing held May 15 at this link.

FSB Numbering System for Credit Unions by March 2013

The Financial Stability Board (FSB) on June 8 issued a report (A Global Legal Entity Identifier for Financial Markets — FSB Report to the G20) on establishing a global "Legal Entity Identifier" (LEI) system that would assign a unique identifying number to every party to a "financial transaction." The report includes 35 recommendations for establishing a global LEI system administered by regional information bureaus (called "Local Operating Units (LOUs)") that interact through an apex information bureau operating at the global level (called the "Central Operating Unit (COU)"), and appears to use an intentionally vague and broad definition of "financial transaction."

FSB's report indicates that the LEI system will apply to all credit unions as well as "all financial intermediaries; banks and finance companies; all entities that issue equity, debt or other securities for other capital structures; all entities listed on an exchange; all entities that trade stock or debt; investment vehicles, including mutual funds, pension funds and alternative investment vehicles constituted as corporate entities or collective investment agreements (including umbrella funds as well as funds under an umbrella structure, hedge funds, private equities, etc.); all entities under the purview of a financial regulator and their affiliates, subsidiaries and holding companies; and counterparties to financial transactions."

The recommended implementation plan targets launch of the global LEI system on a self-standing basis by March 2013. The LEI system would be paid for with fees levied on financial institutions receiving LEI numbers.
According to the FSB, the LEI numbering system would be "in line with" the existing ISO (International Organization for Standardization) 17442:2012 standard that assigns numerical identifiers to financial institutions. ISO currently has 164 member countries.

IASB Releases Draft Accounting Standards for Comment

Since May, the International Accounting Standards Board (IASB) has issued two sets of proposed accounting standards for public comment.

On June 26, IASB issued a request for information, which is the first step in IASB's comprehensive review of its "International Financial Reporting Standards for Small and Medium Enterprises," or "IFRS for SMEs." IFRS for SMEs applies to credit unions in some countries that have adopted IFRS, such as Great Britain. The deadline for comments regarding the IFRS for SMEs public consultation is Nov. 30, 2012.

On May 3, IASB issued an exposure draft regarding its proposed Annual Improvements to IFRSs 2010–2012 Cycle document. Comments regarding the proposed Annual Improvements must be submitted to IASB by Sept. 5, 2012. The Annual Improvements document includes 11 proposed amendments regarding the accounting subjects listed in the table below:

IFRS Subject of Amendment
IFRS 2 Share-based Payment

Definition of "vesting condition"

IFRS 3 Business Combinations

Accounting for contingent consideration in a business combination

IFRS 8 Operating Segments
  1. Aggregation of operating segments; and
  2. Reconciliation of the total of the reportable segments' assets to the entity's assets
IFRS 13 Fair Value Measurement

Short-term receivables and payables

IAS 1 Presentation of Financial Statements

Current/non-current classification of liabilities

IAS 7 Statement of Cash Flows

Interest paid that is capitalised

IAS 12 Income Taxes

Recognition of deferred tax assets for unrealised losses

IAS 16 Property, Plant and Equipment
IAS 38 Intangible Assets

Revaluation method — proportionate restatement of accumulated depreciation

IAS 24 Related Party Disclosures

Key management personnel

IAS 36 Impairment of Assets

Harmonisation of disclosures for value in use and fair value less costs of disposal

Please do not hesitate to contact me if you have any questions about these international legislative and regulatory recent developments. Thank you very much and have a nice day.

Michael S. Edwards
Chief Counsel and VP for Advocacy & Government Affairs
World Council of Credit Unions (WOCCU)
+1-202-508-6755 (office) | |
+1-215-668-5240 (mobile)

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