On Uncertainty…
Volume 13, Number 3
March 22, 2023
Advocacy News You Can Use
Many of us are watching as the United States grapples with the failures of Silicon Valley Bank and Signature Bank, and Republic Bank receiving an infusion of USD 30 billion from 11 large banks. In the EU, Credit Suisse Bank received a USD 53 billion infusion from the Swiss central bank. It was interesting to see the European Central Bank move forward with a half point raise in interest rates given the recent events around the world.
What we see is the balancing of fiscal policy coming up against the challenges of managing a balance sheet of a financial institution during a time of turmoil. Clearly, regulators are having to prioritize financial stability in the face of inflation that is not quite under control. On top of that, there is real uncertainty over what is the true health of the system and whether the contagion is limited to a few institutions vulnerable to rising interest rates.
It is really difficult to try and look to the future to put all of the pieces together. Even the smartest people in the room cannot give us a clear answer. We are all going to have to deal with this uncertainty--and how events will play through to credit unions, who tend to shine during times of financial crisis--is also unclear. What is clear, however, is that many of the reforms put in place coming out of the last financial crisis, such as the Basel III Framework (with included proportionality), various resolution tools, stronger supervisory oversight and financial backstops, are all at work and responding to the crisis. Appropriately tailored regulations that promote responsible growth and properly managed risk are essential keys to our success in dealing with this uncertainty.
WOCCU Urges Greater Flexibility for Credit Unions in IASB Standard
World Council of Credit Unions (World Council) urged the IASB to provide greater clarity in its proposed revisions to the IFRS’ Exposure Draft for IFRS for SMEs Accounting Standard (Exposure Draft), that would clearly delineate that credit unions can used the relaxed standard for its allowance for loan and lease loss accounting (IFRS 9 or CECL). This standard is currently utilized in several countries for credit unions, however, many countries due to the current definition of “publicy accountable” contained in the current definition. Some jurisdiction tend to view credit unions as “publicly accountable” even though the term as used in the standard tend to apply to publicly traded vs. non-publicly traded entities, thus acting as a barrier to utilization of the IFRS for SME’s standard. Other countries have allowed accounting standards based on the IFRS for SME standard for credit unions.
While the language proposes changes that would bring some greater clarity to the definition, WOCCU urged IASB to provide certainty in the revisions noting that credit unions due to their cooperative model, their relatively small size as compared to banks, and the use of financial statements by their members would warrant such a treatment.
Explicitly allowing use of the IFRS for SME standard would prove a valuable contribution to the objective of financial inclusion, particularly in developing countries where pro forma accounting systems are imposed without regard for the size and complexity of the institution subject to the accounting standard. Allowing credit unions to state their financials in conformity with the IFRS for SME standard will not only reduce compliance burdens and provide proportionality but will likely improve the quality of financials provided to their members and regulators.
A copy of the letter can be viewed here.
Why this matters to your credit union: Allowing credit unions to explicitly utilize the IFRS for SME standard can bring regulatory relief to the burdens of IFRS 9/CECL.
World Council Urges More Action by G20 on Financial Inclusion
The World Council of Credit Unions today urged the G20 to take further action to increase financial inclusion through credit unions worldwide. Specifically, World Council is requesting that the G20 provide direction to international standard setting bodies to work with national level authorities and supervisors on proportional tailoring of regulations that will allow the unique not-for-profit cooperative model of credit unions to increase access to responsible and affordable financial services to rural and underserved communities.
“While the G20 has embraced financial inclusion as the way to reduce inequality and support inclusive and sustainable growth, they need to take the next step to ensure that local, community based financial institutions such as credit unions that are best suited to achieve their goals do not have unnecessary barriers in their way. Implementation of proportionality at the national level is key to this success,” said Andrew Price, World Council Senior VP of Advocacy and General Counsel.
These comments were elaborated on in a letter to the finance minister of India who is the Presidency of the G20 New Delhi Summit 2023. This year it will culminate in the issuance of a Leaders’ Declaration sometime in September in 2023. World Council is urging the G20 to adopt language furthering the ability of credit unions to address financial inclusion.
In particular, the letter notes financial inclusion reduces inequality, which in turn supports inclusive and sustainable growth by allowing the vulnerable to remain healthy, stay out of poverty, pay for education and accumulate human capital. The proportionate application of International Standards for financial regulation is the key and a critical factor in enabling innovative financial inclusion through credit unions and achieving this goal. The request would insure that international standard setting bodies work with national-level authorities to ensure the proper implementation of proportionality.
A copy of the letter can be viewed here.
Why this matters to your credit union: Further work on proportionality will enhance the ability of credit unions around the world to achieve financial inclusion and better serve their members. National-level regulators are hesitant to implement proportionality, and this effort could remove that barrier.
FSB Publishes Report on Priority Actions for Enhancing Cross-Border Payments
On February 23, 2023, the Financial Stability Board (FSB) released its G20 Roadmap for Enhancing Cross-Border Payments, Priority actions for achieving the G20 targets, which was provided to the G20 Finance Ministers and Central Bank Governors ahead of their meeting that took place on February 24-25th. The report outlines analysis and stocktakes (including stockholder feedback) garnered over the first two years following its endorsement of its Roadmap for Enhancing Cross-Border Payments, released in 2020. In addition to highlighting its priority actions for attaining G20 targets, the report details actions to meet the quantitative targets by 2027 to “provide accountability and ambition”. To address the FSB’s priorities, it will work with the Committee on Payments and Market Infrastructures (CPMI) under two industry taskforces; and the International Monetary Fund (IMF) and World Bank will give technical assistance to jurisdictions outside of the G20’s purview.
The next phase of the FSB’s work on enhancing cross-border payments will consist of three priority themes:
- Payment system interoperability and extension. Actions include the extension of RTGS operation hours, interlinking payment systems, creating a forum for central banks to exchange practices, and finalizing requirements for cross-border payment service level agreements.
- Legal, regulatory and supervisory finalizing frameworks. Actions include promoting efficient legal, regulatory and supervisory environment for cross-border payments, improving consistency of bank and non-bank regulation and supervision, enhancing information provided to end-users, and updating the application of AML/CFT rules.
- Cross-border data exchange and message standards. Actions include facilitating cross-border data exchange and standardizing messaging formats, enhancing interaction between data frameworks and cross-border payments, improving API coordination, and exploring enhanced use of the legal entity identifier (LEI).
More information on the FSB’s its G20 Roadmap for Enhancing Cross-Border Payments, Priority actions for achieving the G20 targets is available here.
Why this matters to your credit union: Reforms to cross-border payments are a major focus of the G20 and the international standard setting bodies. Their work will have a profound effect on payments, and how credit unions will access and be able to provide services to their members. These proposals show key developments on these changes.
FSB Publishes Letter to G20 on 2023 Work Priorities
On February 20, 2023, in advance of the G20 meeting on February 24-25, the Financial Stability Board (FSB) released its letter from Chair, Klaas Knot to the G20 Finance Ministers and Central Bank Governors outlining its 2023 work including its objective “to monitor and address these vulnerabilities”. The letter also includes three reports covering non-bank financial intermediation (NBFI), crypto-assets and decentralized finance, and cross border payments. The FSB believes caution should be exercised when evaluating the current global economy due to “record-high” debt levels, “rising debt service costs and stretched asset valuations in some key markets". Further, the FSB plans to enhance cyber and operational resilience and will provide a revised report on cyber incident reporting. They will also work on enhancing disclosures, data and climate-related vulnerability analysis to address climate-related financial risks.
The key elements of the FSB's reports include:
- Non-bank financial intermediation: The Financial Stability Aspects of Commodity Markets report concentrates on vulnerabilities within the non-bank sector, specifically in the physical and derivatives commodities markets.
- Crypto-assets and decentralized finance: The report on The Financial Stability Risks of Decentralised Finance (DeFi) highlights vulnerabilities in DeFi systems and refers to policy recommendations to address the risks associated with DeFi, as well as data gaps for risk monitoring.
- Cross-border payments: The FSB will publish a report regarding the implementation of the G20 Roadmap to enhance cross-border payments. Two task forces will be formed “to strengthen private sector participation in taking the Roadmap forward.”
More information on the FSB’s work plans for 2023 are available here.
Why this matters to your credit union: The work priorities of the FSB give us insight into the upcoming regulatory changes that will affect credit unions. Crypto-assets and cross border payments all will have effects on credit union operations in the future.
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Andrew T. Price, Esq. |
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