Policymakers in the G20 should avoid creating a new layer of regulation to counter future systemic financial risks, the former Superintendent of Financial Institutions has warned.

In a new report released by the C.D. Howe Institute, Nick Le Pan cautions against current G20 proposals to expand regulation to include system-wide macroeconomic risks.

“Priority should be on improving the existing system from lessons learned, before we put all our energy into a new macro-prudential system,” says Le Pan, chairman of the Canadian Public Accountability Board and past Superintendent of Financial Institutions.

He notes that many domestic and international policymakers are attempting to enhance international financial stability by simply adding the responsibility of this oversight to the existing mandates of all central banks and regulatory authorities.

For instance, the G20 leaders have proposed amending regulatory systems so that authorities are able to identify and take account of macroprudential risks across the system, including in banks, shadow banks, and private pools of capital. But Le Pan notes that the proposals do not include granting the authorities new powers to force changes in cases where risk management falls short.

“This holds the risk of creating responsibility without authority,” he says.

Without more clarity on goals and responsibilities, adding responsibility for system-wide risk to the mandates of the Bank of Canada, the Superintendent of Financial Institutions and other regulators risks unproductive overlap and loss of focus, according to Le Pan.

He also advises against assigning to a single agency the responsibility of ensuring stability of the financial system.

Instead, he recommends that the finance minister create a legislated financial stability committee, with the Bank of Canada, OSFI, and key securities regulators among the members. It should be separate from the existing, successful federal committee that deals with individual problems at banks and insurers. The finance ministry should coordinate the financial stability assessment process and chair the committee, according to Le Pan.