CANADIAN FINANCE minister Jim Flaherty says the enforcement of banking regulations is the sine qua non for the inherent strength of the country’s banking system.
Flaherty says he keeps in regular contact with the person responsible for banking prudence – Julie Dickson, Canada’s superintendent of financial institutions – and can phone the chief executives of the country’s five largest banks at any time.
Financial supervision is covered by four separate entities in Canada: Flaherty’s department of finance; Dickson’s Office of the Superintendent of Financial Institutions (Osfi), which focuses on the solvency of banks, insurers and pension funds; the Bank of Canada, the country’s central bank; and the Financial Consumer Agency of Canada, which monitors how banks treat their customers.
Ireland is re-merging the Irish Financial Services Regulatory Authority with the Central Bank in the Government’s new Central Bank of Ireland Commission, while the two functions remain separate in Canada.
Dickson rejects a one-size-fits- all-approach to regulation and says different models work differently in other countries.
“It is less about your regulatory structure and more about your approach: whether you can keep people, whether you have enough talent in your organisation, the information-sharing. If you are in separate agencies you have to have very good information-sharing,” she says.
Canada does not have a national regulator of securities. This function is delegated among 13 supervisors across the country’s 10 provinces and three territories.
Flaherty says the creation of a national regulator of securities will be “the final pillar” for financial supervision in Canada.
“That is one area where I would have to say that the system has not worked that well,” he tells The Irish Times. “We think we can do significantly better.”
Dickson’s office employs 500 people, broadly similar to the staff in the soon-to-be reformed Irish Financial Regulator. She oversees 475 institutions, including 60 banks, and 1,200 pension funds, focusing primarily on the internal controls and audit departments of the banks.
“If you believe that the risk management function is incredibly strong as a supervisor in a bank, you can do less work than if you believe it is not strong. We spend a lot of time asking a lot of questions of the chief risk officer and of the internal auditor,” she says.
Dickson’s regulators talk to the boards of the banks and examine all documentation seen by the boards. Her officials also comb the banks’ loan books to assess any risks and how the banks rate each loan. The regulator avoids outsourcing supervision to accountancy firms because it is “difficult to determine the expertise”, she says, and her officials would not develop “a corporate memory”.
Osfi cannot compete with private-sector pay, so Dickson woos long-serving financial executives from industry by showing them how much knowledge they can gain supervising an array of companies and sectors. “Many of them have been in the business for 30 years and they can smell a rat pretty quickly,” she says.
Dickson says her office shows its teeth by “staging” banks. For example, stage one might be an early warning sign, telling a bank it needs more capital, which, she says, “hurts” a bank. Stages two to four can involve sending in a big team to carry out “a very intensive drill-down” in a bank’s activities.
“Chief executives don’t like going to their board saying they have a problem with the regulator,” she says. “That is quite effective in getting institutions to fix a problem so they can get off that ‘stage’ list.”
