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As the G20 leaders meet in St. Petersburg this week to hash out their priorities for the world's biggest economies, it's illustrative to consider how well they have addressed the last set of priorities set when they met in Mexico 15 months ago. A study from a University of Toronto-based research body has given the G20 a B+ for overall compliance to the commitments made at the 2012 Los Cabos meeting – not bad. But the report also shows that most countries are lagging on implementing key reforms aimed at safeguarding the global economy from another financial meltdown – and Canada is among the laggards.
The report, produced by the U of T's G20 Research Group in conjunction with the Moscow-based International Organisation Research Institute, gave the 20-member economic and financial forum an overall compliance score of 78.5 per cent, based on a compilation of each country's performance in the 12 months following the Los Cabos summit on 17 "priority commitments" laid out at that meeting. Canada's score of 87.5 per cent tied (with the European Union) for the fourth-highest score among G20 members, behind Australia (97 per cent), the United States (90.5 per cent) and Britain (90.5 per cent).
But when it comes to the key financial-sector regulatory pledges from Los Cabos, the G20 isn't doing nearly so well. The group posted an average score of just 57.5 per cent for its commitment to improve and increase supervision of systemically important financial institutions (SIFIs) – those "too big to fail" financial entities whose collapse would threaten financial-market and economic activity. It scored 68.5 per cent on its pledge to ensure that all standardized over-the-counter derivatives (for example, the mortgage-backed securities that nearly blew up the world in 2008) are traded on recognized exchanges and cleared through central counterparties by the end of 2012. These two scores ranked in the bottom five among the priority-commitment performances.
SIFIs and OTC derivatives were two of the biggest issues identified in reducing the risk of more financial crises like the one that nearly triggered a full-on Depression five years ago. Yet the progress on these fronts among the world's 20 big economies has been fitful, incomplete and distressingly slow. Consider that the Financial Stability Board, the world's overseer of such matters, set the end of 2012 as the deadline for implementation of the OTC market reforms; by mid-2013, fewer than half the G20 economies had done so. That's nowhere near good enough.
And it turns out Canada – yes, the same Canada lauded as the great beacon of financial stability during the crisis – is part of the problem. The bulk of its OTC reforms remain in the comment-and-approval stage; we're unlikely to be in full compliance with our G20 commitments for at least another year. And the G20 Research Group's analysis concludes that Canada hasn't done enough on SIFI supervision, either. When you consider that it was a combination of a largely-unregulated $80-trillion OTC derivatives market and an under-supervised banking industry that brought the global financial system to the brink of collapse, this is a pretty big deal. Without better oversight, we run the risk that a massive pool of little-understood assets could again blow up in our faces.
Canada's excuse, too often, is that it was waiting for the huge U.S. market to establish its own reforms and establish a framework with which its smaller Canadian neighbour could co-ordinate. But the U.S. had fully met its G20 commitments on both OTC reforms and SIFI oversight months ago. Canada needs to redouble its efforts, or risk allowing its financial-market reputation slide from world leader to global delinquent.
David Parkinson is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow him on Twitter at @parkinsonglobe .
David Parkinson