The World Council of Credit Unions(WOCCU) has said credit unions and financial cooperatives worldwide still face the challenge of reaching out to unserved markets and vulnerable populations.
In its 2023 Global Regulatory Update, WOCCU also notes that the payments landscape continues to evolve rapidly with new fintechs, technologies and regulatory challenges. These, along with digitization, cybersecurity and a myriad of technological changes, also represent challenges to the credit union cooperative model.
AML/CFT regulations are also listed as a key concern by WOCCU, which reports that these continue to impose large regulatory burdens for credit unions and often act as a barrier to account opening and access to correspondent banks.
The WOCCU Global Update warns that significant changes are occurring in the payments area with potentially disruptive effects on credit
unions.
Therefore, it will be key to ensure affordable access on a level playing field so that credit unions can provide services to their members.
WOCCU said that 2023 promises to be another difficult year for credit unions. The global organization emphasizes threats posed by cyber incidents, with cybersecurity continuing to be high on the list of priorities for regulators worldwide as a risk to financial institutions.
Both the frequency and sophistication of cyber-attacks are ever-increasing, and the pressure to increase and improve cybersecurity is growing. At the same time, the cyber threat landscape is continually changing and expanding amid the rapid digital transformation.
Cybersecurity remains a priority for many regulators, representing a systemic risk for all financial institutions. International standard setters continue to work on standards and other information-sharing tactics to strengthen the financial sector.
Foreseeably, WOCCU says that there will be additional regulations that will alter how credit unions are addressing cybersecurity concerns.
“International standard setters are beginning to understand the critical role that credit unions play in providing responsible and affordable financial services. This is a key driver for inclusive and resilient growth around the world.
Shaping the regulatory frameworks that help maximize this potential will allow credit unions to be the catalyst for rebuilding coming out of the pandemic and throughout an anticipated global recession,” said Andrew Price, World Council Senior VP of Advocacy and General Counsel.
The World Council’s Global Regulatory Update is put out on an annual basis to help credit unions and financial cooperatives prepare for the compliance issues most likely to impact them in the year ahead. The new edition also covers several other leading regulatory issues affecting credit unions across the globe.
According to the World Council’s 2023 Update, the link between proportionality and financial inclusion will be addressed by the G20 at the G20 Heads of State and Government Summit in Pragati Maidan, New Delhi, to be held this year.
WOCCU notes that placing credit unions at the forefront as a contributor to social change and progress in addressing climate change and emphasizing their role in providing resilient and sustainable financial services will be a continuing priority.
The global body said that significant transformation is also occurring in payments, particularly related to cross-border payments and a focus on faster, cheaper, more transparent, and more inclusive systems. Ensuring affordable and simple access for credit unions is an important objective.
While Central banks are continuing to press ahead by issuing or experimenting with digital currencies, the G20 has set targets for faster, cheaper, more transparent and more inclusive cross-border payments.
Instant payments have quickly become a dominant player in the payments game. While the world adapted to a pandemic with the increased use of digital platforms, many credit unions have not had the resources to keep up with innovation.
Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) continues to be an emphasis for the G20, for international standard-setting bodies like FATF) and for national-level regulators. It also continues to be one of the largest sources of compliance burdens for credit unions, presenting numerous obstacles for account openings and other services, such as payments.
Credit unions acknowledge they play an important role in fulfilling their obligation to monitor and detect illicit activity.
But these rules need to be appropriately tailored to smaller financial institutions, subject to a risk-based approach, and should adequately consider the field of membership requirements and the cooperative model, which allow credit unions to have a unique relationship with their members as owners.
AML/CFT regulations are often the greatest contributor to a disproportionate regulatory burden for credit unions. Including proportionality in international standards and working with national-level regulators on implementing properly tailored regulations will be key to allowing credit unions to increase financial inclusion and supporting their ability to serve marginalized or underserved populations.
In conclusion, this report notes that the regulatory landscape continues to evolve at a rapid pace but is struggling to keep up with and adapt to the evolving technology and increasing sophistication of the marketplace.
The key for credit unions is to ensure that the member-owned cooperative model is acknowledged by the regulators and supported. Proportionality is often the key to achieving this regulatory paradigm.
The unique community-based, the member-owned structure of credit unions brings with it inherent consumer protections and a focus on local communities. When the strength of the financial institution is its members and not shareholders, the ability of credit unions to catalyze
rebuilding, supporting its communities where others will not, and providing responsible and affordable financial services to all, becomes paramount.
This 2023 Global update by WOCCU encourages policymakers to embrace this.
World Council of Credit Unions is the global trade association and development platform for credit unions.
World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high-quality and affordable financial services.
World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions’ financial performance and increase their outreach.
Available data shows that there are 87,914 credit unions worldwide in 118 countries with a total membership of 393 million people.
