Basel Committee Issues Needed WOCCU-Advocated Guidance on Proportionality
Encouragement of proportionally tailored local regulations should help ease compliance burden for credit unions
July 08, 2022
MADISON, Wis.—The Basel Committee on Banking Supervision (Basel Committee) has issued guidance encouraging national-level regulators to consider tailoring its standards for less complex financial institutions such as credit unions—a position long-advocated for by World Council of Credit Unions that will benefit financial cooperatives and their members worldwide.
In its High-level Considerations on Proportionality publication, released July 7, the Basel Committee stated this most recent guidance “aims to provide practical support to supervisory authorities seeking to implement proportionality in their domestic regulatory and supervisory frameworks.”
WOCCU has long advocated for the Basel Committee to work with national-level supervisors on the implementation of its Basel III standards, so they can be tailored appropriately for the size, risk and complexity of credit unions, allowing them to better serve their members.
More recently, WOCCU urged the G20 to give direction to international standard setting bodies to work with national-level regulators on proportionality for the purposes of advancing financial inclusion. With the release of its new guidance, the Basel Committee took an important step in creating a framework that will enhance the ability of credit unions to promote financial inclusion.
The document specifically states:
"Depending on local circumstances, it might be appropriate to tailor regulation for non-internationally active banks. This includes potentially applying the Basel Framework in its current form (ie Basel III), or earlier or modified forms, for jurisdictions that have simpler banking systems, implemented in a way that is consistent with the underlying objective of the international standard. Such proportionate approaches preserve financial stability through bank safety and soundness. For some banks and banking systems, this might be achieved with rules that are even simpler than the Basel Framework while remaining broadly aligned with the international standards."
This represents clear guidance to national-level supervisors that they can tailor the Basel Framework in a manner that contemplates the lower risk, less complex credit union model.
“We have been urging the Basel Committee for years to provide further guidance and direction to supervisors on how to implement the Basel Framework for credit unions. This guidance is welcomed and will ultimately help credit unions achieve greater financial inclusion worldwide,” said Andrew Price, Senior Vice President of Advocacy and General Counsel, World Council of Credit Unions.
The document further puts forth seven high-level considerations, as well as more specific recommendations relating to various elements of the Basel Framework, including:
- definition of capital.
- calculation of RWA.
- leverage ratio.
- liquidity requirements.
- large exposures.
- pillar 2.
- disclosure requirements.
- corporate governance.
- risk management.
Many national-level policymakers continue to feel obligated to apply Basel III and other Basel Committee standards to non-complex, purely domestic deposit-taking institutions, even though that standard is intended for large, internationally active banks. This guidance takes important steps to clearly outline factors justifying the application of less complex regulatory approaches to less complex institutions.
A copy of the guidance can be viewed here.
World Council of Credit Unions is the global trade association and development platform for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach.
World Council has implemented 300+ technical assistance programs in 90 countries. Worldwide, 87,914 credit unions in 118 countries serve 393 million people. Learn more about World Council's impact around the world at www.woccu.org.