What growing protectionism could mean for financial standards

As nationalist governments spark fears of trade wars and protectionism that could damage the global economy, the C.D. Howe Institute sees another potential casualty: standards for financial services.

In “International Prudential Standards in a World of Growing Nationalism and Protectionism,” authors Mark Zelmer and Jeremy Kronick argue that international bodies need to adapt to a changing mood when it comes to cooperation.

Read: Are your clients at risk from protectionism? Experts weight in

The world of international cooperation is changing, the report says, and international agreements will be harder to come by. As a result, it will be increasingly up to jurisdictions to pursue their own regulatory reforms rather than following international ones.

The report offers several recommendations for international standard setters:

Work with member countries, individually or in a group setting, to help coordinate domestic initiatives and prevent them from “unintentionally working at cross-purposes with the global financial system, especially in times of stress.”
Take a more cautious approach to setting minimum standards, and ensure they accommodate differences in domestic institutional settings.
Adopt more stringent and transparent public disclosure requirements so that private stakeholders can understand how differences in institutional settings are affecting the measurement and management of risk at financial institutions, as well as the calculation of regulatory capital and liquidity ratios.
Encourage member countries to fully and consistently implement agreed-upon standards before seeking to introduce new reforms.

The report also says that Canada needs to “continue supporting the international standard-setting process if we are to fully realize the benefits that come from being a medium-sized participant in the global financial system.”

Read the the full report here.

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