World Council Supports Coop Shares as Equity
Volume 8 Number 2
March 6, 2019
World Council Supports Coop Shares as Equity
World Council of Credit Unions (World Council) has strongly supported the International Accounting Standards Board’s (IASB) recent proposal to continue its existing accounting treatment for classifying cooperative shares as equity. Under this standard, cooperative shares typically qualify as equity on an accounting basis when the cooperative has an unconditional right to refuse redemption of the shares.
Equity accounting treatment for cooperative shares is important for credit unions and other mutual depository institutions because capital instruments must qualify as equity in order to be included as “common equity Tier 1” capital. Common equity Tier 1 capital also includes retained earnings and is the most desirable form of regulatory capital under the Basel III capital accord.
Basel Committee Adopts World Council-Advocated Simplified Approach for Market Risk
The Basel Committee on Banking Supervision (Basel Committee) has finalized amendments to the Basel III market risk framework which introduce a simplified approach supported by World Council that will help limit regulatory burdens on credit unions and other community-based depository institutions. Basel III’s approach to market risk sets many banks’ and credit unions’ reserve requirements for available-for-sale securities and derivatives positions under risk-based capital rules.
The simplified approach to market risk will help limit compliance costs by retaining the existing Basel II standardized approach to market risk with the addition of a 30 percent “scaling factor” add-on that the Committee reduced from its originally proposed 50 to 100 percent increase at World Council’s urging.
World Council Urges Basel Committee to Preserve Access to Interest-Rate Derivatives
World Council has urged the Basel Committee to preserve community-based financial institutions’ access to interest-rate derivatives by adopting revisions to the Basel III leverage ratio that would reduce banks’ capital requirements with respect to client cleared derivatives. Continued access to interest rate swaps and caps is important for community-based financial institutions for safety and soundness reasons because they help credit unions and other mutuals to hedge against interest rate risk.
World Council argued that unless such revisions are made, smaller users of interest rate swaps and caps may no longer be able to access interest rate derivatives at fair rates, or at all, because high capital requirements for these products due to be phased-in during 2020 will make them unprofitable for money-center banks to offer to smaller financial institutions.
World Council and CUNA Urge IRS to Reduce FATCA Reg Burdens
World Council and the Credit Union National Association (CUNA) have urged the Internal Revenue Service (IRS) to reduce regulatory burdens for credit unions in connection with the Foreign Account Tax Compliance Act (FATCA). FATCA requires many non-US financial institutions to report US citizens’ financial account information to tax authorities and it also requires credit unions in the United States to withhold taxes on some international electronic payments.
World Council and CUNA strongly supported many aspects of the proposed rule that, if finalized, will reduce unnecessary compliance costs for credit unions by eliminating FATCA tax withholding requirements for many types of international payments.
European Network of Credit Unions Urges EU Authorities to Minimize Anti-Money Laundering Reg Burdens
The European Network of Credit Unions urged the European Supervisory Authorities to use the increased communication and collaboration that will be gained as a result of their proposed revised guidelines for “Anti-Money Laundering Colleges” composed of financial regulators to reduce regulatory burdens on European credit unions. Anti-money laundering/countering the financing of terrorism regulatory burdens often impose disproportionate compliance costs on credit unions and other smaller financial institutions because they do not have the economies of scale possessed by large European banks.
Michael S. Edwards
Sr. VP & General Counsel
World Council of Credit Unions (WOCCU)
99 M St., SE, Washington, DC 20003 USA
Office: +1-202-508-6755 | Mobile: +1-215-668-5240
medwards@woccu.org | www.woccu.org