De-Regulation Next on Global Agenda
Volume 6 Number 7
October 24, 2017
Advocacy Outlook Autumn 2017: De-Regulation Next on Global Agenda
With the Basel III post-global financial crisis rulemaking process nearly complete, we are entering a new, de-regulatory phase for global standard-setting bodies such as the Basel Committee on Banking Supervision and the Financial Stability Board.
Recent electoral results in G20 countries—including the United Kingdom’s vote last year to “Brexit” the European Union—have resulted in several center-right G20 governments that are generally seen as favoring pro-business structural reforms, such as the administrations of Argentine President Mauricio Macri, French President Emanuel Macron, German Chancellor Angela Merkel, Japanese Prime Minister Shinzo Abe, United Kingdom Prime Minister Theresa May, and United States President Donald Trump. These national-level political results have helped shift the international rulemaking agenda from one of increasing regulation to one where new rules in progress have largely stalled and the stage is being set for possible de-regulatory initiatives.
The international financial rulemaking agenda is currently being driven by the recently concluded 2016-2017 German G20 presidency and the recently begun 2017-2018 Argentine G20 presidency. The financial regulatory agenda resulting from the G20 Hamburg Summit—held at the conclusion of the German G20 presidency in July—included instructions to the Basel Committee “to finalise the Basel III framework without further significantly increasing overall capital requirements across the banking sector . . . .” Several significant Basel III-related proposals affecting capital levels remain outstanding because of a lack of consensus among member governments, including a proposal on the capital treatment of mortgage loans, a proposal on reserves for operational risk, and proposed “capital floors” for large banks using internal models.
The G20 leadership has also instructed the Financial Stability Board and other global standard-setting bodies to conduct a review and evaluation of the financial rules established in response to the global financial crisis since 2010. The report “will examine intermediation trends by broad financing source (including bank financing and market-based financing), across types of borrowers and across countries, and evaluate the effects of the financial reforms on resilient financial intermediation in relevant areas.”
This stocktaking analysis will provide a political opening to revisit the post-crisis rules adopted over the past several years with an eye to reducing regulatory burden. While no one is suggesting that the post-crisis rules be rolled back in toto, global standard-setting bodies’ workstreams are now starting to focus on achieving more “proportional” regulation that would reduce compliance burdens for community-based financial institutions such as credit unions and other financial cooperatives.
The Argentine government has expressed strong support for this stocktaking analysis of post-crisis financial reforms’ impact on financial intermediation. A G20 action plan to revise post-crisis reforms with an eye to reducing regulatory burdens in the name of “proportionality” is a strong possibility for the Buenos Aires G20 Summit in 2018.
World Council of Credit Unions expects the international-level regulatory agenda for the rest of 2017 and for the first half of 2018 to focus primarily on the following issues:
- Evaluation of the effects of recent G20 financial sector reforms, likely leading to proposals to reduce regulatory burden;
- Cyber security, following on the Financial Stability Board’s recently completed cyber-security stocktaking analysis;
- Corporate governance, especially with respect to misconduct risks;
- Countering the financing of terrorism and nuclear proliferation, particularly with respect to financing activities carried out by Islamic State and the Democratic People’s Republic of Korea;
- Regulation of the “FinTech” sector;
- Efforts to reduce regulatory barriers affecting international correspondent banking and remittances;
- Legal entity beneficial ownership transparency;
- Reform of interest rate benchmarks (such as the discontinuation of LIBOR);
- Reform of the “shadow banking sector” (i.e. financial institutions, such as securities broker-dealers, that are not authorized to accept deposits but operate in a bank-like manner); and
- Review of the definitional criteria for Global-Systemically Important Banks (G-SIBs).
European Network of Credit Unions Opposes EU-Level Intervention in Non-Performing Loan Secondary Markets and “Accelerated Loan Security” Measures
The European Network of Credit Unions (ENCU) on October 20th filed comments opposing the European Commission’s proposed European Union-level interventions in the secondary market for non-performing loans. ENCU’s comments also urged the Commission not to propose a new, out-of-court “accelerated loan security” mechanism that would allow secured creditors of businesses to seize and dispose of collateral outside of existing national-level debtor-creditor and insolvency laws.
ENCU argued that existing, national-level legal frameworks for non-performing loan secondary markets have struck the appropriate balance for the Member State in question based on the Member State’s economic realities and legal traditions.
Regarding new out-of-court “accelerated loan security” mechanisms, ENCU supported carving out consumer loans from this approach but also urged the Commission carveout loans to small businesses as well. ENCU argued that small-business owners are often physical person consumers who are self-employed and are typically personally liable for their business loans, meaning that social equity grounds militating against applying an accelerated loan security instrument to consumer loans also apply to loans made to small businesses.
Michael S. Edwards
VP & General Counsel
World Council of Credit Unions (WOCCU)
601 Pennsylvania Ave., NW, Washington, DC 20004-2601 USA
Office: +1-202-508-6755 | Mobile: +1-215-668-5240 | Fax: +1-202-638-3410
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