Bank of Nova Scotia President and CEO Rick Waugh called on international regulators to proceed cautiously as the world’s economy begins its recovery, and said Canadian regulators should recognize the strengths already in our system.

“It comes down to prudent and balanced management at all levels, by all parties, public and private,” Waugh told a sold-out Canadian Club luncheon meeting Monday in Toronto. “Changes must certainly be made, but the risks of over-reaction and damaging our return to economic growth are not to be treated lightly.”

Waugh said Canada’s financial sector is already strong, with effective fiscal, monetary and regulatory oversight, as well as good, prudent management of financial institutions.

He said the Bank Act is robust and comprehensive, while allowing for change and evolution. The nation also benefits from the open dialogue maintained with the banks by policy setters and the Office of the Superintendent of Financial Institutions.

“Right now there are some disturbing suggestions being put forward in a number of international jurisdictions on how to structure and regulate the global financial sector to prevent further crises and strengthen the system for the future,” added Waugh, who served as co-Chairman of the Institute of International Finance’s Committee on Market Best Practices.

“These proposals must be thought through very carefully. We must not try to fix things too quickly, or go too far and risk the probability of unintended consequences in restoring economic growth and financial stability. And certainly for us in Canada — we want to make it clear that our system can always be improved, but is not broken. The remedies to fix those systems that are broken may not all be appropriate for us.”

Going forward, Waugh offered two broad recommendations: ensure collaboration on issues of systemic risk among regulators, policy setters and the private sector, while also allowing for big and small financial institutions to fail, but in an orderly and controlled fashion; and that the banks and private financial institutions ensure risk cultures that includes accountability by all participants, with checks and balances both externally and internally.

“In Canada this means implementing a national securities regulator and ensuring it is part of the collaboration process,” he said. “Collaboration is especially important in a world of globalization and inter-connectedness, and in a time of uncertainty. The crisis showed the degree to which the global financial system is interconnected. It is critical that all parties involved work together to build a new financial framework that addresses this complex interdependence.”

IE