Basel Committee issues World Council-supported proportionality guidance

July 11, 2022

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—a position long-advocated for by World Council of Credit Unions that will benefit financial cooperatives and their members worldwide.

In its High-level Considerations on Proportionality publication, released July 7, the Basel Committee stated this most recent guidance “aims to provide practical support to supervisory authorities seeking to implement proportionality in their domestic regulatory and supervisory frameworks.”

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.

CUNA and WOCCU urged the G20 in March to give direction to international standard setting bodies to work with national-level regulators on proportionality for the purposes of advancing financial inclusion. 

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 (ie 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."

This 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. This guidance is welcomed and will ultimately help credit unions achieve greater financial inclusion worldwide,” said Andrew Price, senior vice president of advocacy and general counsel, World Council of Credit Unions.

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.

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. 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.