Speaking Thursday to the Standing Senate Committee on Banking, Trade and Commerce, Nick Le Pan, Superintendent of Financial Institutions said that the Enron fiasco didn’t raise many prudential issues for Canadian regulators.

“From the point of view of federally regulated financial institutions, the failure of Enron and other high-profile corporations did not present a major prudential issue,’ he said. “While some federal financial institutions had exposures to the failed entities, these were manageable. This reflects overall sound risk management and control practices.”

He suggested that regulation and supervision should limit the opportunity for financial institutions to replicate the dangerous practices at Enron and other companies. “At the same time, in the current environment, it is important that regulators and policymakers look to the lessons and enhance sound corporate governance practices, and also ensure we all can continue to rely on the work of those who provide independent oversight functions to corporations whose stakeholders rely on them,” he noted.

Le Pan also indicated his support for the mandatory expensing of stock options. “Requiring explicit recognition of the cost of options fosters a better environment less prone to excesses.”

But he also noted that major financial institutions are going to have to devote more resources for audit functions. “This means more time by audit and risk committees of financial institutions to understand and be satisfied with the scope and nature of audits and to follow up on results. It means more resources to cover external audit services, which will cause costs to rise, but that is money well spent.”

He noted that OSFI has been working closely with the Canadian Institute of Actuaries on its process of enhanced peer review, and that it expects to issue draft guidance on peer review shortly. “We are strongly supportive of the implementation of a meaningful peer review process to support our reliance model.”