Global credit union body calls for proportionality in digital regulation

The update, from the World Council of Credit Unions, aims to help credit unions prepare for compliance issues

Credit unions around the world need fair, proportional treatment from policymakers developing the digital regulatory environment.

The call came in the 2024 Global Regulatory Update from the World Council of Credit Unions (Woccu), which also wants regulators to recognise the difference of the co-operative model, the scope and breadth of the service provided, differences amongst communities receiving services and relative risks to the financial services market.

Released every year, the Global Regulatory Update aims to help credit unions and financial co-operatives prepare for the compliance issues most likely to impact them in the year ahead.

It points out that if regulations are written only for large international banks, community-based organisations will be excluded from key aspects of the financial services market. At the same time, Woccu warns there is also a danger of insufficient regulations allowing profit-driven entities to evade consumer protection and other safeguards.

The update also advises credit unions to closely identify the digital needs of their members, the use of digital platforms, and other methods of electronically accessing and delivering services.

It looks at a range of regulatory issues affecting credit unions across the globe, including: climate change and sustainable finance; cybersecurity and operational resilience; payments and money laundering; and the need to combat the financing of terrorism.

Related: 60 US credit unions suffer outages after ransomware attack

The update notes that while the initial climate-related international standards have embraced a proportional application, ensuring national-level standards follow that same path will be critical. “Developments on sustainable finance and combating climate change will present both a great opportunity and a significant regulatory challenge for credit unions in the future,” it reads.

In terms of cybersecurity regulations, Woccu says credit unions should carefully monitor their cybersecurity infrastructure and ability to quickly report an incident, as well as their use and reliance on third-party vendors. But, it adds, national-level regulators should follow proportionality guidance from international standard setters and not apply rules only intended for the largest international institutions.

“Appropriately tailoring these regulations to ensure safe practices while not taking resources away for unnecessary regulations is directly tied to the work credit unions are able to do in their local communities,” reads the update.

Another important area where regulatory changes are under way is payments. Woccu points out that access for credit unions to these new payment system developments is crucial to prevent the exclusion of underserved communities.

As international standards setters such as the G20 and the Financial Action Task Force (FATF) are looking at Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT), Woccu points out that financial inclusion is only possible if credit unions have access to correspondent services and proportional regulations commensurate with the risk and scope of the financial institution.

“AML/CFT is one of the most critical regulatory areas to balance the need for preventing financial crimes with the ability for credit unions to support underserved communities,” the update says. “Many communities have situations not accounted for by mainstream national regulations and require additional flexibility. Digital developments may offer credit unions an effective way to reach new members and Woccu is encouraged by FATF’s guidance directing appropriately tailored regulations and resources for credit unions.”

Erin O’Hern (image: Woccu)

Erin O’Hern, Woccu’s international advocacy and regulatory counsel, said: “If international standard setters truly want to ensure emerging digital technologies play a major role in reaching financial inclusion goals, they must recognise that credit unions will reach more unbanked and underserved consumers through these innovations than any other type of financial institution.

“They must provide timely guidance to national-level regulators that level the playing field for our community-based organisations, so they can properly estimate the compliance resources needed to develop and maintain digital products and services.”

Woccu says it will continue to advocate in front of the international standard setters for appropriately tailored regulations.

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