The Advocacy Marathon….
Volume 15, Number 5
May 29, 2024
Advocacy News You Can Use
Many of us have heard the phrase, “It’s a marathon, not a sprint”, and engaging in advocacy pursuits requires marathon-length endurance. Here at WOCCU, the International Advocacy team understands that every comment letter, speaking engagement, meeting, conference, etc. is only a small step toward the finish line. We are working towards a global regulatory understanding of why proportional regulation is imperative to the survival of small financial institutions such as credit unions. First, we must understand why credit unions and the cooperative model are so important to the financial services community. Those of us who are immersed in the credit union world may find this question rudimentary and/or discussed ad nauseum, and others may forget to ask the question all together because it is entrenched in every aspect of our work to support credit unions. But let’s ask ourselves this question again and look at it with refreshed eyes. How would you convince someone that knows little to nothing about the value of credit unions? These are the conversations that we must have to continue the work of supporting credit unions through regulatory change.
Over 20 Jurisdictions Use or Plan to Use the ISSB’s Standards
According to the IFRS, “Jurisdictions representing over half the global economy by gross domestic product (GDP) have announced steps to use the International Sustainability Standards Board’s (ISSB) Standards or to fully align their sustainability disclosure standards with those of the ISSB.” This includes over 20 jurisdictions representing close to 55% of the GDP, over 40% of global market capitalization, and more than half of global greenhouse emissions.
The IFRS believes the International Organization of Securities Commissions’ (IOSCO) endorsement of the ISSB’s sustainability-related financial disclosure standards back in July 2023, has created a “significant response” after encouraging its members to adopt, apply or be informed of the Standards so that it fosters consistency and comparability for companies’ climate and sustainability-related disclosures for investors. IOSCO has 130 member jurisdictions that regulate more than 95% of the world’s securities markets.
On May 28, 2024, the IFRS Foundation announced that is released a guide, the Inaugural Jurisdictional Guide for the adoption or other use of ISSB Standards, to help jurisdictions design and plan for the adoption or other use of its ISSB Standards. The Foundation has also outlined its Regulatory Implementation Programme, which is a framework to collaborate with the Growth and Emerging Markets Committee of IOSCO.
More information is available here.
Why this matters to your credit union: Sustainability standards are on the road to becoming commonplace. Credit unions must begin to acknowledge the importance of sustainability-related financial disclosures, and how it will impact their operational costs, staffing needs, and reporting requirements.
European Council Approves Artificial Intelligence Act
On May 21, 2024, the European Council announced its approval of the Artificial Intelligence or AI Act, to set a global standard AI regulation through a risk-based approach. “The new law aims to foster the development and uptake of safe and trustworthy AI systems across the EU’s single market by both private and public actors.” The AI Act provides classification of AI systems based on risk, with lower risk systems being subject to light transparency obligations and high-risk systems subject to more requirements and obligations. AI that is capable of cognitive behavioural manipulation, social scoring, and the use of AI for predictive policing based on biometric data that categorize people based on race, religion, or sexual orientation will be banned in the EU. An AI Office in the European Commission, scientific panel, and an AI Board with member states’ representatives will be implemented as governing bodies to ensure enforcement.
More information on the AI Act is available here.
Why this matters to your credit union: Technology innovations are moving at a rapid pace and regulators are doing their best to keep up. Credit unions must assess what technological changes are necessary to keep up in a changing digital world, and what the compliance implications are for implementing any new technology.
Basel Committee Publishes Report on Implications of Digitalization of Finance on Banks and Supervision
On May 16, 2024 the Basel Committee published a report on the Digitalisation of Finance, outlining the risks and benefits of new technologies and its suppliers for the purposes of banking services, as well as “eight implications for banks and supervisors relating to macro-structural elements, specific digitalisation themes, and capacity building and coordination.” The report expands on the 2018 Sound Practices: implications of fintech developments for banks and bank supervisors. Technologies such as application programming interfaces, artificial intelligence and machine learning, distributed ledger technology and cloud computing, as well as new technologically enabled suppliers (eg big techs, fintechs and third-party service providers) and business models are reviewed within the report. The Committee hopes to address regulatory and supervisory implications such as:
- “monitoring evolving risks and adopting a responsible approach to innovation;
- safeguarding data and implementing robust risk management processes; and
- securing the necessary resources, staff and capabilities to assess and mitigate risks from new technologies and business models.”
More information on the report on the digitalization of finance is available here.
Why this matters to your credit union: Credit unions must be aware of the regulatory implications for any technology they may use. Advocacy efforts have had some success in appealing for right-sized regulations for small financial institutions, especially those with less sophisticated systems within their institution, but the use of technology is inevitable. Eventually the majority of financial services providers will need to apply digitization in some way and when this happens, there are costs, regulatory and compliance burdens to consider.
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Panya Monford, Esq. |