The World Council of Credit Unions (Woccu) has published a Covid-19 Regulatory Guide featuring responses taken by key regulators in different countries.
Credit unions must be considered “essential” during the Covid-19 crisis, argues Woccu. It says the way regulatory bodies respond to the pandemic is “critical to the survival of credit unions”. Furthermore, says Woccu, exclusion from the definition of “essential” prohibits credit unions from providing “necessary and often lifesaving services”.
The guide also points out that financial resilience requires flexibility of standards, and clear regulatory approval of such flexibility for credit unions. The trade body further emphasises that accounting, capital standards, IT requirements and lockdown orders must be considered carefully during the crisis to allow effective operation of credit unions.
In March, international standard-setting bodies issued guidance to assist financial institutions in dealing with the Covid-19 crisis. The Basel Committee on Banking Supervision provided relief for financial institutions by delaying deadlines for the implementation of the Basel III framework, and gave supervisory authorities more flexibility to undertake further measures to preserve financial stability.
Similar guidance was released by the International Financial Reporting Standards Foundation, which oversees International Accounting Standards Board, which highlighted that entities should not continue to apply their existing expected credit losses methodology mechanically but instead take into account the existing environment.
Woccu welcomed the approach and called on national-level regulators to allow for flexibility that will allow credit unions to serve their members during the crisis.
In terms of IFRSF’s guidance, Woccu pointed out some practical issues.
“While this guidance from the regulators is helpful to provide flexibility, numerous jurisdictions have reported difficulty in obtaining specific guidance on many practical issues such as how to treat moratoriums on payments, moratoriums on foreclosures, debt collection and moratoriums on evictions,” it said.
“Often, not enough specificity or flexibility is afforded to a credit union on provisioning for these circumstances when the lack of payment is due to a government order. Regulators should provide clear guidance on these issues. Further, specificity on whether interest will continue to accrue, whether missed payments can be capitalised or need to be forgiven, should be addressed.”
IT infrastructure is another concern for credit unions during the pandemic, with more and more customers using online and mobile services. Woccu advises credit unions to ensure their IT can support a sharp increase in usage over an extended period of time and that third party providers are prepared to deal with the increase and remain vigilant against cyber attacks.
Woccu’s guidance also looks at how credit unions can and have provided relief to members in need, such as by deferring payments, reducing interests, waiving fees and consolidating debt or providing financial counselling and scam protection guidance or health information.
In terms of liquidity, Woccu’s guidance advises credit unions to analyse their cash/liquidity situation and place proper limits on cash withdrawals. They can also get in touch with their corporate or central bank to see what relief they are providing.
The full guidance is available on Woccu’s website.