As August Ends
Volume 15, Number 8
August 30, 2024
Advocacy News You Can Use
As August ends, with the familiar sentiment that it passed by quickly, it is important to take stock of the advocacy environment. Many governments globally will return from a session break and continue their lawmaking activities next month. It is especially important this year as 2024 is shaping up to be a notable election year with an estimated 64 countries holding elections, representing almost 50 percent of the global population. With many new representatives taking office, it is important to share the credit union message, ensure that proposed laws account for the needs of local communities and new relationships are bridged with key contributors to the regulatory landscape.
If elections are happening in your country this year, I encourage you to reach out to newly elected officials and highlight the impact credit unions have in your community. Understanding the credit union difference is a key first step for officials to understand the need for proportionally tailored laws and regulations designed for not-for-profit, member-owned financial institutions. The efforts to create or maintain a stable, well-monitored regulatory framework must be carefully balanced with the need for a flexible and cost efficient regulatory environment. Both are needed to provide consumers with the best financial services.
Canadian Report Highlights Growing Regulatory Burden and the Importance of Proportionality
The C.D. Howe Institute, a nonpartisan not-for-profit research organization, recently issued a report highlighting the increased regulatory burden in Canada and the need to carefully consider both the benefits and costs of new requirements in the future. The report, The Good, the Bad and the Unnecessary: A Scorecard for Financial Regulations in Canada documents the trade-offs of additional regulations and recommends that regulators undergo a thorough and disciplined analysis to understand when the benefits of a new regulatory requirement out-weigh the costs.
The report importantly notes that regulating financial institutions is critical to a well-functioning, stable economy that protects consumers. It also shows there are negative consequences to unnecessary and overly burdensome regulations. It finds a more balanced approach is needed in future rulemaking. Regulations must be analyzed in terms of the impact on the overall cost of services and the ability of financial institutions to continue to serve consumers. The report also recommends that regulators account for the disproportionate impact regulations can have on smaller organizations. Proportional regulations, adjusted to the size and complexity of the institution, is needed to ensure continued competition in the financial services industry.
New regulations often require significant resources when accounting for higher compliance costs, the expense of operational changes, the lost opportunity to invest in the local economy and finance innovation. Good rule-making processes are shown to be a benchmark of an efficient financial regulatory system. The report encourages regulators to ensure they have properly identified potential problems, conducted a thorough cost-benefit analysis and clearly defined objectives before proposing a new regulation.
The report notes that unnecessary regulation is difficult to undo, therefore the process to propose and adopt new regulation must be considered carefully. It found that that a better balance is needed between regulatory objectives and costs to ensure the regulatory framework promotes financial stability as well innovation and growth, both of which benefit consumers.
Click here to read the full report.
Why this matters to your credit union: While this report is specific to Canada it provides helpful information applicable to other credit union systems globally. The recommendations for regulators outlined in the report include helpful information on the need and methods for a cost benefit analysis of proposed regulations. It also discusses the challenges of undo regulations and provides an objective perspective on proportionality and the importance of the rulemaking process.
New FATF President Highlights Inclusive Approach
New Financial Action Task Force (FATF) President Elisa de Anda Madrazo recently addressed the G20 Finance Ministers and Central Bank Governors at their meeting in Brazil. In one of her first comments as President she declared that financial inclusion will be one of her main areas of focus when delivering FTAF’s new strategic priorities. She noted securing financial integrity is not a trade-off with financial inclusion. She emphasized FATF is working diligently to prevent money laundering activity while maintaining access for clean funds to move through the regulated financial system. Excluding people from the financial system will increase inequalities and push them to unregulated options, increasing overall risks.
To meet their mandate FATF is reinforcing the need to apply a risk-based approach when designing financial integrity measures. This includes the use of simplified due diligence methods. FATF is also contributing to the G20’s roadmap on cross-border payments and updating the related standards. The President also noted the need for FATF to support low-capacity countries that have unique challenges. The support will include developing new guidance on combating illicit finance, partnering with technical assistance providers to help build effective frameworks and supporting jurisdictions as they implement regulations for virtual asset service providers.
Ms. Elisa de Anda Madrazo of Mexico will serve as the new President of FATF from July 1, 2024 to June 30 2026, she succeeded Mr. T. Raja Kumar of Singapore.
Click here to learn more.
Why this matters to your credit union: FATF establishes the standards that are adopted and often closely followed at the national level. They represent some of the most important regulatory requirements that credit unions follow to prevent terrorist financing and money laundering and some of the most challenging to financial inclusion. FATF’s renewed focus on financial inclusion is a positive sign for clarity and more effective standards for a risk-based approach.
IASB Proposes Guidance to Improve Climate Related Disclosures
The International Accounting Standards Board (IASB) published a consultation document, proposing eight examples to demonstrate how companies apply IFRS Accounting Standards when reporting the effects of climate-related and other uncertainties in their financial statements.
The illustrative examples were created to provide helpful information to clarify proper reporting, they do represent new mandatory requirements. IASB is issuing this guidance following requests from stakeholders, particularly investors, who expressed concerns that the information about climate-related risks in financial statements was insufficient or inconsistent. This new proposed guidance is intended to strengthen the connection and consistency between financial statements and the company’s other reports such as sustainability disclosures.
The eight illustrative examples in the guidance focus on key areas such as disclosures on assumptions and estimations, disaggregation of information and materiality judgments. The IASB worked with the International Sustainability Standards Board (ISSB) to provide these clarifying examples and is continuing to explore ways to help improve widespread reporting of the financial impact of climate-related risks.
Comments must be submitted to the IASB by November 28, 2024. The IASB will review feedback to determine whether to finalize the proposed examples and provide them with the IFRS Accounting Standards.
Click here to read the full proposal.
Why this matters to your credit union: This proposed guidance is another example of the international standard setters continued focus on the financial impact and risks of climate change. It also indicates the commitment to creating in-depth disclosure requirements. It is important to note these continued updates by the international standards setters as many individual governments look to adopt requirements for credit unions in their own countries modeled after the international standards.
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Erin O'Hern |