BASEL, Switzerland.—The Basel Committee on Banking Supervision (Basel Committee) has issued guidance encouraging national-level regulators to consider tailoring its standards for less complex financial institutions such as credit unions, according to the World Council of CUs, which has been advocating for the guidance.
In its High-level Considerations on Proportionality publication, the Basel Committee stated the new guidance “aims to provide practical support to supervisory authorities seeking to implement proportionality in their domestic regulatory and supervisory frameworks,” according to WOCCU.
“WOCCU has long advocated for the Basel Committee to work with national-level supervisors on the implementation of its Basel III standards, so they can be tailored appropriately for the size, risk and complexity of credit unions, allowing them to better serve their members,” the trade group said.
The World Council reminded the more recently it has urged the G20 to give direction to international standard setting bodies to work with national-level regulators on proportionality for the purposes of advancing financial inclusion.
“With the release of its new guidance, the Basel Committee took an important step in creating a framework that will enhance the ability of credit unions to promote financial inclusion,” WOCCU stated.
Specific Language
According to World Council, the document specifically states:
"Depending on local circumstances, it might be appropriate to tailor regulation for non-internationally active banks. This includes potentially applying the Basel Framework in its current form (i.e. Basel III), or earlier or modified forms, for jurisdictions that have simpler banking systems, implemented in a way that is consistent with the underlying objective of the international standard. Such proportionate approaches preserve financial stability through bank safety and soundness. For some banks and banking systems, this might be achieved with rules that are even simpler than the Basel Framework while remaining broadly aligned with the international standards."
Guidance is Welcomed
The statement, WOCCU said, represents “clear guidance to national-level supervisors that they can tailor the Basel Framework in a manner that contemplates the lower risk, less complex credit union model.”
“We have been urging the Basel Committee for years to provide further guidance and direction to supervisors on how to implement the Basel Framework for credit unions,” said WOCCU’s Andrew Price, SVP-advocacy and general counsel. “This guidance is welcomed and will ultimately help credit unions achieve greater financial inclusion worldwide.”
7 Considerations
WOCCU noted the document further puts forth seven high-level considerations, as well as more specific recommendations relating to various elements of the Basel Framework, including:
- Segmentation
- Definition of capital
- Calculation of RWA
- Leverage ratio.
- Liquidity requirements
- Large exposures
- Pillar 2
- Disclosure requirements
- Corporate governance
- Risk management.
‘Important Steps’
“Many national-level policymakers continue to feel obligated to apply Basel III and other Basel Committee standards to non-complex, purely domestic deposit-taking institutions, even though that standard is intended for large, internationally active banks,” the World Council said. “This guidance takes important steps to clearly outline factors justifying the application of less complex regulatory approaches to less complex institutions.”
A copy of the guidance can be viewed here.
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