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The Economic Crisis: The Future of Financial Regulation
The causes of the global economic crisis, as well as the relief measures and proposed reforms, will continue to be debated for many months to come. In Canada, the debates have been somewhat different than in many other advanced economies due to the relative stability of Canada’s financial system throughout the crisis. And for that reason, Canada has lacked the same sense of urgency that other countries feel toward the need for financial regulatory reform.
An Issue in Focus paper prepared for CGA-Canada by policy analyst Michael Andrews provides a concise overview of the causes of 2007’s economic crisis as well as the measures that have been implemented or proposed since then. The paper (Regulatory Reform in Response to the Global Financial Turmoil: Finding the Middle Road Between
For many of the G20 countries, the economic crisis of 2007 was much more than the onset of an overdue recession. It was accompanied by the failure and subsequent bailout of banks and financial institutions. Some jurisdictions, particularly the United States, experienced the bursting of a housing bubble that dramatically deflated house prices. And underlying these developments were questions about the adequacy of financial regulation – questions about the role of
A Different Picture in Canada
In Canada though, the picture of the crisis looks somewhat different. Canadians and Canadian businesses have certainly experienced hard times since the recession settled in during the latter half of 2008. However, it could be argued that the causes of Canada’s economic difficulties have more to do with
None of Canada’s banks required financial bailouts. In fact, throughout the crisis Canada’s banking sector has been held up as the poster child of financial stability. Canada’s housing market suffered a serious downturn, but more of a correction than the outright collapse south of the border. So Canadians, and their politicians, could be forgiven if they are not obsessed with the subject of regulatory reform. But Andrews points out that if we take a complacent attitude, we are overlooking some fundamental weaknesses in Canada’s regulatory approach and the opportunity to learn from the experience of others. In the Issue in Focus paper, he writes:
“One of the lessons from the global financial turmoil is the need to focus on the soundness and stability of the overall financial sector. Supervisory authorities’ traditional focus on individual institutions may not identify the
CGA-Canada has supported creation of a common securities regulator in Canada and has gone further, proposing that it also have responsibility for financial reporting standards and auditor oversight. This would bring Canada more
“This proposal will result in a legitimate, transparent, accountable, efficient and effective regulatory structure,” says Presseault of the proposal which was outlined in
Such a proposal is also consistent with the views of the G20 leaders following their April 2009 meeting in London where they agreed on the need for strong national regulatory systems, but also a need for “greater consistency and systematic cooperation between countries, and the framework of internationally agreed high standards.” It is also in line with the recommendations of the Expert Panel on Securities Regulation. (Editor’s note: Michael Andrews, author of the Issue in Focus paper, served as a consultant to the Expert Panel on Securities Regulation.)
International Standards Should be Accompanied by Consistent Regulatory Structures
Presseault says that restructuring our accounting standard-setting and auditor oversight functions would also help Canada to meet the recommendations of the International Federation of Accountants (IFAC). Presseault participated in the IFAC G20 Accountancy Summit held in London in July which issued recommendations to the G20 leaders prior to the Pittsburgh meeting. First among those recommendations was that “the G20 should encourage all governments to adopt and implement common global standards not only for accounting, but also for auditing and for auditor independence.”
“Although Canada is implementing IFRS effective in 2011, there is still a role for a national accounting standard-setting body,” says Presseault. “And since the Accounting Standards Board’s role will be changing anyway, this makes it the perfect time to address structural issues and improve its independence and accountability.”
With talk in Ottawa these days of a possible fall election, regulatory reform and a common securities commission may not top the policy agenda. However, as the Issue in Focus paper makes clear, Canada should avoid complacency and being left behind in the global move toward reform.
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