World Council Details Top 2021 International Advocacy Success Stories

WASHINGTON, D.C—World Council of Credit Unions (WOCCU) continued in 2021 to successfully advocate before international standard setting bodies on behalf of the global financial cooperative movement. Here are WOCCU’s Top International Advocacy Success Stories of the year.

1. G20 Reaffirms Support on Proportionality and Financial Inclusion

The G20 reaffirmed its support for a WOCCU advocated position that national-level regulators put a greater focus on proportionality in the newly released G20 Rome Leaders’ Declaration, which embraces a commitment to enhancing the financial inclusion of vulnerable and underserved segments of society that credit unions should now have an even greater opportunity to serve.

• They endorsed the G20 Menu of Policy options focused on digital financial literacy and financial consumer protection, as well as the risk-based approach of the Financial Action Task Force (FATF), which aims to promote financial inclusion and ensure legitimate cross-border payments.
• The G20 also reiterated its support for the G20 2020 Financial Inclusion Action Plan, which includes a provision that allows for an enabling and proportionate legal and regulatory framework for digital financial inclusion that takes relevant G20 and international standard setting body standards and guidance into account.
• This accomplishment was due to efforts by WOCCU and its respective G20 members (Australia, Brazil, Canada, South Korea and United States), which engaged in outreach with their individual country’s finance ministers. It resulted in favorable language being included in the G20 directive to international standard setting bodies.

2. WOCCU Call for COVID-19 Flexibility Heeded by Basel Committee

The Basel Committee on Banking Supervision responded favorably to WOCCU’s call for flexibility in the withdrawal of COVID-19 related relief measures. Pablo Hernández de Cos, Chairman of the Basel Committee, responded directly to WOCCU advocacy efforts and noted that:

• The Committee continues to monitor risks and vulnerabilities to the global banking system.
• They encourage the use of flexibility embedded in the Basel framework.
• They will adopt additional global measures in a coordinated manner, if necessary.

A measured drawdown of Basel III capital and liquidity buffers to absorb shocks and keep lending to creditworthy households and businesses is appropriate.

The Committee supports the use of proportionality in implementing the framework in a manner consistent with FATF's Core Principles.

3. FATF Supports Proportionality

The Financial Action Task Force (FATF) issued its Risk-Based Supervision Guidance, which contains a risk-based approach and guidance on proportionality. WOCCU advocated for the inclusion of proportionality in this guidance, which contains a risk-based approach, principles of proportionality and direction on financial inclusion. A highlighted box on supervising lower risk sectors and entities and supporting financial inclusion contained specific proportionality and financial inclusion language.

4. WOCCU Advocated Proportionality Included in Basel Committee Guidance

Two guidance documents issued by the Basel Committee concerning Operational Resilience, including the Principles of Operational Resilience and Revisions to the Principles for the Sound Management of Operational Risk, featured language on proportionality. The guidance included the WOCCU-recommended principled approach which allows for a risk-based and proportional application to any requirements implemented.

5. Bank of Italy (G20 Host Country) Supports WOCCU Financial Inclusion Efforts

WOCCU and its G20 members (Australia, Brazil, Canada, South Korea and the United States) made efforts with the G20 to link financial inclusion to proportionality and the role that credit unions can play in expanding those inclusion efforts. During the G20 process (led in 2021 by Italy), Ignazio Visco, the Governor of the Bank of Italy at the 2021 IIF G20 Conference, noted that digitalization may lead to new forms of exclusion, but the outcome was dependent on the development and accessibility of digital infrastructures, the degree of financial and digital literacy, and the adequacy of governance—especially in the field of supervision and regulation. The Bank of Italy also corresponded with WOCCU in indicating that it supported many of our measures and that they were under consideration by the finance ministers as part of the G20 process. Some of those measures were included in the ultimate Leaders’ Declaration.

6. WOCCU Advocated Proportionality Included in FATF Stocktake on the Unintended Consequences of the FATF Standards

WOCCU commented to FATF on this consultation on the unintended consequences of their standards. As a result, FATF published its High-Level Synopsis of the Stocktake of the Unintended Consequences of the FATF Standards, which included recognition of several issues identified by WOCCU:

FATF included language in the report that reads, “in general, the misapplication of the FATF Standards, and in particular the failure to use the proportionality that is central to the risk-based approach, can lead to or compound financial exclusion.”

FATF noted that their standards and communications do not adequately encourage authorities to understand the impact of financial exclusion on ML/TF risks.

FATF also noted the problem of de-risking that can affect credit unions when offering access to affordable and necessary financial services.

7. FATF Acknowledges Burden of AML/CFT Requirements on the Advancement of Financial Inclusion in Cross-Border Payments

WOCCU commented on the FATF survey on Cross-Border Payments. Upon the subsequent release of its report, “Cross-Border Payments Survey Results on Implementation of the FATF Standards,” FATF noted “the survey results highlight, among others, that lack of risk-based approach and inconsistent implementation of the AML/CFT requirements increases cost, reduces speed, limits access and reduces transparency.” FATF also noted that the failure to implement proportionality “can also exclude access for those without the ability to provide certain documents or information, usually the ones at most need of financial inclusion.”

8. WOCCU/ENCU Advance Credit Unions in the European Union

The European Network of Credit Unions (ENCU), comprised of WOCCU and eight European credit union associations, conducted outreach throughout the year with various representatives from the offices of Members of the European Parliament (MEPs), representatives from Member States in the Council of the European Union and various other offices in the European Union. ENCU urged policymakers to apply proportional treatment to credit unions on various items coming up in the European Parliament’s legislative term, including:

the Digital Operational Resilience Act (DORA), which looks to impose new operational resilience and reporting requirements. ENCU is working on either carving out credit unions from the scope (allowing for national-level regulation) or including mechanisms for proportionality.

the Consumer Credit Directive, looking to overhaul lending disclosures (ENCU is looking to include proportionality measures for credit unions).

Sustainable Finance to support the transition to a sustainable economy (seeking proportional treatment for governance, disclosures and other measures, as well as pushing to designate credit unions as a sustainable business model once a social taxonomy is considered).

The EU Banking Package, which is looking to strengthen oversight of EU banks (ENCU has been successful in preserving the CRD IV exemption, which allows for proportional treatment of capital and other prudential standards).

“What is important is that the international standard setting bodies are recognizing the importance of tailoring regulations for smaller, community-based financial institutions, such as credit unions, so that burdensome regulations do not deny someone access to responsible financial services. This focus on proportionality, which allows the credit union cooperative model to function, is a key element in achieving financial inclusion,” said Andrew Price, WOCCU Senior Vice President of Advocacy and General Counsel.