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World Council Reducing CU Regulatory Burdens at International Level
Monday, April 27, 2015 6:35 AM

The World Council of Credit Unions actively monitors and participates in the policy development of numerous international organizations to ensure credit union interests are represented in the formation of international standards. Here is an update of World Council's advocacy efforts and its impact on the global credit union community:

  • Increasing Acceptance of Credit Union Shares as "Common Equity Tier 1" Capital: World Council advocacy efforts have helped increase the acceptance of credit union shares as Basel III "Common Equity Tier 1" (CET1) capital. In 2012, World Council shared its position paper Credit Union Shares as Regulatory Capital Under Basel III with the Basel Committee on Banking Supervision (BCBS) and members of the International Credit Union Regulators' Network (ICURN).
    The paper concluded that credit union shares should qualify as CET1 capital under Basel III if they are membership shares that are fully paid-in, perpetual, non-withdrawable, redeemable for cash only under limited circumstances, uninsured, able to absorb losses on a going concern basis, and do not have a pre-set dividend. Credit union regulators including the Australian Prudential Regulatory Authority and the Autorité des marchés financiers du Québec have authorized credit unions to offer CET1 shares on a direct or contingent basis.
  • Getting Better Rates on Bank Deposits: Advocacy by World Council and the European Network of Credit Unions (ENCU) before the BCBS also resulted in credit unions getting better rates on bank deposit investments by significantly decreasing the reserves that banks subject to the Basel III liquidity rules must hold against deposits made by credit unions. The BCBS's 2014 revisions to the Basel III "Net Stable Funding Ratio" (NSFR) urged by World Council and the ENCU reduced by 50 percent the reserves banks must hold against 6 to 12 month term deposits made by credit unions. The ENCU also successfully urged the European Union to reduce the reserves that European banks must hold against liquid deposits made by credit unions.
  • Reducing AML/CFT Compliance Burdens: World Council's advocacy before the Financial Action Task Force (FATF) as part of the FATF's invitation-only Private Sector Consultative Forum on anti-money laundering and countering the financing of terrorism (AML/CFT) rules has resulted in several FATF guidance papers with provisions intended to reduce AML/CFT compliance burdens on credit unions.
    A recent example is the FATF's revised Risk-Based Approach for the Banking Sector guidance issued in October 2014, which adopted the exact language suggested by World Council's comments in two areas: (1) stating that AML/CFT compliance programs should be "commensurate with the complexity of the bank's operations" in order to limit burdens on less complex credit unions; and (2) stating that regulators should issue AML/CFT guidance after "engaging in a consultative process with relevant stakeholders," which many jurisdictions do not usually do.
  • Improving International Accounting Rules: World Council's advocacy before the International Accounting Standards Board (IASB) resulted in the IASB adopting International Financial Reporting Standard 9 (IFRS 9), an expected credit loss methodology that will require significantly lower loan loss reserves than the "Current Expected Credit Losses" (CECL) standard proposed by the Financial Accounting Standards Board (FASB) under US GAAP. World Council's advocacy has also resulted in increased acceptance of small credit unions using accounting standards derived from the IASB's IFRS for Small and Medium Enterprises rules.
  • Curbing New Financial Transaction Reporting Requirements: World Council's advocacy before the Financial Stability Board (FSB) and the Legal Entity Identifier Regulatory Oversight Committee (LEIROC) limited the mandate to adopt the Legal Entity Identifier (LEI) numbering system to financial institutions that buy derivatives. Originally, the FSB proposed that the LEI should also be adopted by all financial institutions offering payments services, making mortgage loans, or selling loans in the secondary market.
  • Limiting Tax Information Reporting Burdens: World Council's advocacy before the United States' Internal Revenue Service (IRS) resulting in a full exemption from the US's Financial Account Tax Compliance Act (FATCA) for non-US credit unions with less than the equivalent of US$ 175 million in assets. We also achieved a reporting exemption in the IRS's FATCA rules applicable to the majority of larger non-US credit unions; these larger non-US credit unions are exempt from nearly all FATCA compliance requirements except for adopting a FATCA policy and registering with the IRS over the internet for identification purposes.