A year marked by COVID-specific regulations still included victories for credit unions

World Council of Credit Unions continued in 2020 to successfully advocate before international standard setting bodies on behalf of the global financial cooperative movement. Here are World Council’s Top 10 International Advocacy Success Stories of the year.

1. Basel AML/CFT Guidance includes World Council Recommendations on Proportionality/Financial Inclusion
The Basel Committee on Banking Supervision issued an updated version of its guidelines on Sound management of risks related to money laundering and financing of terrorism, with guides on the interaction and cooperation between prudential, and anti-money laundering and combatting the financing of terrorism (AML/CFT) supervisors. The issuance specifically included World Council-recommended language stating that AML/CFT burdens should be "proportional and risk-based, informed by banks’ own risk assessment of ML/FT risks." Further, with respect to member/customer due diligence, the guidance notes that "It is important that the customer acceptance policy is not so restrictive that it results in a denial of access by the general public to banking services, especially for people who are financially or socially disadvantaged."

It is a key policy priority of World Council to safeguard the financially underserved population’s access to fundamental services necessary to participate in today’s financial market.

2. WOCCU Recommended Proportionality Included in FATF Proliferation Financing Guidance
World Council suggested the Financial Action Task Force (FATF) adopt amendments to Recommendations 1 and 2 and their Interpretive Notes that urge clear direction to national-level regulators to tailor proliferation-financing regulations proportionately for credit unions. The amendments 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 and enhance domestic coordination.

FATF responded to World Council’s request 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.

FATF further reiterated its strong support of financial inclusion goals. Ensuring 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 of World Council.

3. FATF Guidance on Digital Identity includes World Council-Advocated Language on Flexible, Risk-Based Approach Supporting Financial Inclusion
World Council-advocated guidance issued by the Financial Action Task Force strongly supports the use of new technologies that strengthen AML/CFT standards and financial inclusion goals. This furthers the ability for proportional tailoring of AML/CFT regulations. Credit union digitization is a priority for World Council, and the flexibility in international standards to allow for proportional tailoring helps advance this cause for credit unions.

4. International Standard Setting Bodies Respond to World Council Call for Flexibility in COVID-19 Response

Basel Committee: Issued a statement on its COVID-19 efforts noting World Council-urged flexibility that allows member jurisdictions to pursue a range of regulatory and supervisory measures to alleviate the financial stability impact of the pandemic. This included measures targeting the provision of lending by banks to the real economy and facilitating banks' ability to absorb losses in an orderly manner. The Committee noted that supervisory authorities also have additional flexibility to undertake further measures if needed. World Council urged this flexibility and also urged national-level regulators to take note of this guidance and similarly allow for flexibility that will allow credit unions to serve their members during the crisis. A copy of the Basel Committee statement can be viewed here.
Basel Committee: The Group of Central Bank Governors and Heads of Supervision (GHOS), which has oversight of the Basel Committee, provided relief to help financial institutions respond to the impact of COVID-19 on the global banking system by delaying deadlines for the implementation of the Basel III framework. They issued a one-year delay in the implementation of the Basel III standards, the revised market risk framework and the revised Pilar 3 disclosures.
Financial Stability Board: The FSB encouraged authorities and financial institutions to make use of the flexibility within existing international standards to provide continued access to funding for market participants, businesses and households facing temporary difficulties from COVID-19. Such flexibility was also encouraged to ensure that capital and liquidity resources in the financial system are available where they are needed. The FSB notes that many authorities have already taken action to release available capital and liquidity buffers, in addition to actions to support market functioning and accommodate business continuity plans. World Council urged flexibility by regulators to keep credit union operations functioning and able to finance the needs of their members.
International Accounting Standards Board (IASB)/International Financial Reporting Standards (IFRS): The IFRS Foundation published a document to address IFRS 9 application questions during the pandemic. The document outlines applicable accounting standards related to expected credit losses (ECL) that may arise —including treatment of payment holidays and direction for including COVID-19 into loss calculations.
European Union: The European Union (EU) Ministers of Finance of the Member States of the EU jointly with the EU Commission have taken decisive action to allow appropriate reaction to the effects on the financial sector due to the COVID-19 crisis—allowing flexibility to support the economy and provide stimulus to member states.
5. World Council, ENCU, EUCUPIG Joint Call for COVID-19 Regulatory Relief Signed by MEPs of the Three Major EU Political Parties
World Council, its European Network of Credit Unions (ENCU) and the European Union Credit Union Parliamentary Interest Group (EUCUPIG) in two separate letters called for regulatory relief to allow credit unions in the European Union to play a critical role in the response to the COVID-19 pandemic. This call for regulatory relief gave critical direction to national-level regulators to adopt regulatory relief to allow credit unions to provide services to households, SMEs and vulnerable groups that face a number of obstacles in accessing credit, particularly during this crisis. This call for regulatory relief came in a series of letters—with the ENCU letter signed by five Members of the European Parliament (MEPs) who are also members of the EUCUPIG, across the three major political parties:

MEP Billy Kelleher (Co-Chair of EPCUIG - Ireland)
MEP Paul Tang (Vice-Chair of EPCUIG – The Netherlands)
MEP Frances Fitzgerald (Ireland)
MEP Barry Andrews (Ireland)
MEP Caroline Nagtegaal (The Netherlands)
6. Basel Committee Provides World Council-Advocated Relief for Non-Performing Loans
The Committee amended its capital requirements for non-performing loan securitizations through a World Council-advocated technical amendment. The rule closes a gap in the Basel framework by setting out prudent and risk-sensitive capital requirements for non-performing loan securitizations. The final rule permits banks to apply the external ratings-based approach to non-performing loan securitization exposures, without the 100% risk weight floor. In addition, the rule refines the definition of the discount incurred by the originating bank that factors in the capital requirements.

World Council commented on this proposal in June, advocating for relief in connection with the securitizations of non-performing loans. The rule should make it easier and cheaper for banks and credit unions to securitize non-performing loans, which will be important as institutional stress increases due to COVID-19.

7. International Association of Deposit Insurers (IADI) Public Policy Objectives includes World Council-Requested Proportionality
The IADI issued a Guidance Paper on the Public Policy Objectives for Deposit Insurance Systems, which was supportive of the principal of proportionality. Most notably, the Paper included a World Council-recommended statement on “Proportionality and Reference to Poland’s Deposit Insurance for Credit Unions.”

8. Basel Committee Treats Credit Valuation Adjustment (CVA) Risk Favorably for Credit Unions
The Committee published an updated standard for the regulatory capital treatment of CVA risk for derivatives and securities-financing transactions that included World Council-supported changes. Those included recalibrated risk weights, and a recalibration of the standardized approach and deferred treatment of certain client cleared derivatives. This should make credit union investments in banks cheaper and easier.

9. IADI Risk Management Guidance includes World Council-Advocated Proportionality
The IADI published the Guidance Paper, ‘Risk Management and Internal Control System of Deposit Insurers’, that included World Council-advocated Guidance Points to address risk management in Deposit Insurers (DIs). The Paper provided Guidance Points based on the World Council requested principle of proportionality and additionally provided suggestions for minimum requirements more appropriate for smaller Deposit Insurers, which should prove helpful for credit unions.

10. World Council Makes Progress in Urging Expanded Use of IFRS 9 for Small and Medium Enterprises (SMEs) for Credit Unions
World Council urged the IASB to allow a greater use of the IFRS for SMEs Standard, specifically to make it easier for credit unions to utilize the standard. World Council 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. World Council 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.

The IASB initially voted to foreclose expansion of the scope. But at the IFRS Foundation's Virtual Conference, a panel discussing the Second Comprehensive Review of the IFRS for SMEs Standard mentioned that credit unions were specifically interested in clarifying the scope so the standard can be used for purposes of calculating Expected Credit Losses and other accounting measures. This indicated a possibility of expanding the scope despite the initial vote to foreclose this option.

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, 86,055 credit unions in 118 countries serve 291 million people. Learn more about World Council's impact around the world at www.woccu.org.