Basel Committee highlights need for proportional approach to regulation

The principle of proportionality can be used by a prudential credit union regulator when implementing the Basel standard at the national level

A Basel Committee statement published on 26 November calls on national level regulators to use proportionality when implementing the Basel III guidelines.

The World Council of Credit Unions (Woccu) has been a long advocate of this approach, arguing proportionality should be taken into account when applying the guidelines to credit unions.

Issued jointly by the Basel Committee on Banking Supervision and the Basel Consultative Group (BCG), the statement adds that “a proportionate regulatory framework should not reduce the resilience of banks or dilute the prudential regulatory framework, but rather reflect the relative differences in risk and complexity across banks and the markets in which they operate.”

Martha Durdin (CCUA-Canada) and Michael Lawrence (COBA-Australia) in Basel, Switzerland (Photo: Woccu)

Andrew Price, WOCCU VP of Advocacy, said: “National-level regulators tend to use the highest standards allowed by Basel III—which were designed to apply to large, international banks. To apply them in equal measure to credit unions is often either inappropriate or excessive. This joint statement reinforces the idea that the supervision of credit unions should be commensurate with the size, risk and complexity of an institution”.

In March 2019 Woccu board directors Martha Durdin (CCUA-Canada) and Michael Lawrence (COBA-Australia) joined Ryan Donovan, chief advocacy officer at US sector body Cuna (Credit Union National Association) to stress the importance of proportionality in a March 2019 meeting with Basel Committee deputy secretary general and BCG co-chair Neil Esho.

“We hope all of our work will reduce the compliance burden on credit unions and other community-based depository institutions across the globe,” said Mr Price.

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