World Council Urges Basel Committee to Limit Corporate Governance Regulatory Burdens
Volume 4, Number 1
January 22, 2015
World Council Urges Basel Committee to Limit Corporate Governance Regulatory Burdens
World Council of Credit Unions filed a comment letter this month urging the Basel Committee for Banking Supervision to limit regulatory burdens on credit unions associated with the Committee’s proposed Corporate governance principles for banks guidance document. The Basel Committee is the primary international standard setting body for financial institution safety and soundness rules, and its proposal would revise the Committee’s currently applicable Principles for enhancing corporate governance paper issued in 2010. The final version of this Basel Committee guidance is likely to affect credit unions around the world by influencing national and provincial supervisors’ approaches to evaluating credit unions’ enterprise risk management and management quality.
Credit union supervisors in many jurisdictions have increased their focus on corporate governance since the Basel Committee issued its original corporate governance guidance in 2010, and in 2013 the International Credit Union Regulators Network (ICURN)—an international network of cooperative financial institution regulators from over 30 jurisdictions—issued its Guiding Principles for Enhancing Governance of Cooperative Financial Institutions based on the Basel Committee’s 2010 corporate governance paper.
The Basel Committee’s proposed revisions to its corporate governance guidance include an increased emphasis on board of directors’ responsibilities for collective oversight of the institution and its risk management. The proposal also addresses “risk culture” at banking institutions, internal controls that achieve “checks and balances,” and the “Chief Risk Officer” and internal audit functions.
World Council strongly supported the consultative document’s statement that “the implementation of these [corporate governance] principles should be commensurate with the size, complexity, structure, economic significance and risk profile of the bank and the group (if any) to which it belongs.” This part of the guidance, if finalized as proposed, is likely to limit corporate governance regulatory burdens at credit unions because it states clearly that less burdensome corporate governance rules are acceptable for smaller, less complex, and lower-risk financial institutions.
We expressed concerns about other aspects of the proposal, however, including the proposed requirements for institutions to undergo stress testing, employ a Chief Risk Officer, and employ an internal auditor.
We urged the Basel Committee to clarify that less complex financial institutions like most credit unions should not be required to undergo stress testing or employ a Chief Risk Officer. In addition, we asked the Committee to clarify that the traditional credit union Supervisory Committee or a similar internal audit committee is an acceptable approach for smaller institutions that often cannot afford to employ a full-time internal auditor.
The Basel Committee is likely to issue the final version of its Corporate governance principles for banks guidance in six to nine months.
FATF Risk-Based Approach to Anti-Money Laundering Guidance Incorporates World Council's Recommendations
The Financial Action Task Force (FATF), the international standard setting body responsible for anti-money laundering and countering the financing of terrorism (AML/CFT) rules, has made significant revisions recommended by World Council to the final version of its guidance on the risk-based approach to AML/CFT for banking institutions. These changes to the FATF’s AML/CFT risk-based approach guidance, which it first adopted in 2007, should help limit compliance burdens on credit unions and also increase opportunities for the credit union movement to participate in AML/CFT rulemaking processes at the national level.
World Council engaged the FATF regarding the risk-based approach to AML/CFT in three separate consultations last year: We filed a comment letter with the FATF in January 2014, made oral comments at a FATF consultative forum held in Brussels, Belgium in March 2014, and filed a second comment letter with the FATF in April 2014.
World Council’s advocacy for the global credit union movement resulted in the FATF revising the final version of its risk-based approach guidance to limit regulatory burdens on credit unions and also to promote public consultations on AML/CFT rules. The FATF used the exact language World Council recommended in our April 2014 comment letter to make these revisions.
Specifically, we successfully urged the FATF to limit regulatory burdens on less complex financial institutions like credit unions by stating that a regulator’s review of an institution’s AML/CFT program should be “to a degree commensurate with the complexity of the bank’s operations.”We believe that this statement will reduce AML/CFT compliance burdens on credit unions because it makes clear that institutions with less risky lines of business should not be required to employ the expensive AML/CFT compliance procedures used by institutions engaged in business activities with high money laundering or terrorist financing risks.
In addition, we successfully urged the FATF to state that national authorities should issue AML/CFT rules and guidance documents only “after engaging in a consultative process with relevant stakeholders” in order to be consistent with democratic and rule-of-law principles. Currently, many jurisdictions issue AML/CFT guidance that supervisors treat as de facto legal requirements even though the guidance is not the product of a notice and comment rulemaking or a legislative process where industry and other members of the public can have meaningful input.
The FATF has also invited World Council to participate in its next consultative meeting on proposed revisions to global AML/CFT rules, which is scheduled for March 26-27, 2015 in Brussels.
Michael S. Edwards
VP and Chief Counsel
World Council of Credit Unions (WOCCU)
601 Pennsylvania Ave., NW, Washington, DC 20004-2601 USA
Office: +1-202-508-6755 | Mobile: +1-215-668-5240 | Fax: +1-202-638-3410
medwards@woccu.org | www.woccu.org
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