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Canada
Score Rank
Financial Standards Index 59.17 out of 100 15
Business Indicator Index 9.23 out of 12 45

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Overall Standards Summary

Canada achieves medium overall compliance with international standards and codes, with a score of 59.17 out of 100 in our Standards Compliance Index. Canada's compliance with the best practices for the macroeconomic fundamentals and financial supervision is overall high, with the only exception of insurance supervision, where no information on Canada's compliance with the Insurance Core Principles as revised in 2003 is available. In the area of institutional and market infrastructure, Canada’s adherence to the international standards is mixed. While it achieves full compliance with the requirements for payment systems, there is no information available as to adherence to best practices in the insolvency and creditors’ rights regime. Realizing the shortcomings in corporate governance and anti-money laundering practices, the authorities initiated reforms to bring these areas in line with the internationals standards. Finally, as far as financial reporting is concerned, Canada has finally adopted International Standards on Auditing effective for periods ending on or after December 14, 2010 and will require application of International Financial Reporting Standards starting January 2011.

Choose a standard for a detailed compliance report:
12 Key Standards for Sound Financial Systems

Compliance Level
Special Data Dissemination Standard
CP
Code of Good Practices on Transparency in Monetary Policy
FC
Code of Good Practices on Transparency in Fiscal Policy
FC
Effective Insolvency and Creditor Rights Systems
II
International Financial Reporting Standards
ID
Principles of Corporate Governance
ID
International Standards on Auditing
EN
Anti-Money Laundering/Combating Terrorist Financing Standard
ID
Core Principles for Systemically Important Payment Systems
FC
Core Principles for Effective Banking Supervision
FC
Objectives and Principles of Securities Regulation
CP
Insurance Core Principles
II
II = Insufficient Information | NC = No Compliance | ID = Intent Declared | EN = Enacted | CP = Compliance in Process | FC = Full Compliance

Macroeconomic Policy and Data Transparency

CPSpecial Data Dissemination Standard

The International Monetary Fund (IMF)discloses on its Special Data Dissemination Standard (SDDS) that Canada became an SDDS subscriber in 1996, and met all SDDS requirements as of February 19, 1999. In 2003, the IMF published a Report on the Observance of Standards and Codes (ROSC) on Canada's statistical practices. The ROSC and the SDDS website assert that Canada meets or exceeds coverage, periodicity, and timeliness requirements for nearly all datasets. However, it does avail itself of flexibility options for its production index and central government operations data. The SDDS website shows that simultaneous release of data is not always practiced – early release to the media under conditions of "press lock-up" is the practice for a number of data categories. These include employment, unemployment, and consumer price data. Finally, the SDDS website notes that no documentation is generally disseminated regarding methods and sources for exchange rate data, but adds that interested parties are provided the contact information of an individual from whom such information may be requested.

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FCCode of Good Practices on Transparency in Monetary Policy

The most recent Monetary Policy Transparency Report on the Observance of Standards and Codes (ROSC) of the IMF was done in the year 2000. According to that report, Canada's monetary policy transparency practice is fully consistent with the IMF's monetary policy transparency code, in whole and in part. This evaluation is reaffirmed and further buttressed by the IMF's Article IV Consultation reports in subsequent years. The 2008 IMF Article IV report lauded Canada for finding creative ways to further strengthen its already enviable monetary policy transparency regime, noting that the Bank of Canada's (BoC) current transparency efforts have been effective in preparing markets for recent shifts in policy stance brought about by market uncertainty due to a slowdown in the U.S. economy. The 2009 Article IV report asserts that the BoC provides timely and adequate statistical coverage of monetary matters. The BoC publishes a wide range of reports, and virtually all are available online, including the quarterly Monetary Policy Report. The 2008 IMF report commended the BoC for increasing the discussion of risks around the forecast in the Monetary Policy Reports and for expanding the range of issues covered in speeches given by members of the BoC's Governing Council. However, the report noted that the BoC does not publish minutes of Council meetings, relying instead on speeches by members to convey information to the market. The IMF states that these speeches represent a uniform Governing Council public view, because they are made by the BoC governor or subordinates who report directly to him. The BoC counters that publishing minutes would have a negative impact on member candor and could jeopardize the Governing Council's composition and legal framework.

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FCCode of Good Practices on Transparency in Fiscal Policy

In 2002, the IMF published its ROSC, fiscal policy transparency module, in which it observed that Canada fully complies with the IMF's Code of Good Practices in Fiscal Policy Transparency and, in some instances, “represents best practice.” Notwithstanding this high level of performance, subsequent IMF Article IV Consultation reports point to ongoing improvement. The 2002 ROSC highlighted the use of private sector economic forecasts, prudence factors, and a contingency reserve for fiscal forecasting in Canada. Fiscal management was also commended for its statistical integrity, impartial tax administration, open procurement, and a transparent regulatory process. Nevertheless, the ROSC made several suggestions for improvement, such as preparing timely and equally convincing current-year approximations of federal and provincial budgets; creating an extensive account of the budget cycle procedures and expenditure management systems; and systematically reporting the use of reserves for non-economic contingencies. The IMF's 2008 Article IV Consultation report noted that many of these suggestions have been acted upon. For instance, Statistics Canada now publishes consolidated data for federal and provincial budgets on a Financial Management System basis. In addition, the Government of Canada and the Organization for Economic Co-operation and Development now publish thorough details of budget and expenditure management practices, such as a joint publication called "Budgeting in Canada." Furthermore, the Treasury Board Secretariat (TBS) posts full descriptions of expenditure management policies and practices online. The TBS also includes a detailed clarification of the budget cycle and process in its Budget and Update publications.

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Institutional and Market Infrastructure

IIEffective Insolvency and Creditor Rights Systems

There is no publicly available, formal assessment of Canada's compliance with the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems. A 2006 article on insolvency and restructuring in Canada by T. Sandler and S. Abitan indicates that insolvency proceedings are generally conducted under court supervision and governed by the Companies' Creditors Arrangement Act (CCAA) or the Bankruptcy and Insolvency Act (BIA), as appropriate. The authors note that the Winding Up and Restructuring Act provides an alternative to the liquidation proceedings of the BIA, and is the only instrument available for the liquidation of financial institutions. In 2005, the Government of Canada introduced an insolvency reform package that sought to modernize the requirements of both the CCAA and the BIA, and to establish the legislative framework for a Wage Earner Protection Program, which is now in place. The Parliament of Canada's website notes that, from 2004 to 2007, the government presented several versions of such a reform bill. The most recent version is projected to enter into force in March of 2010.

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IDInternational Financial Reporting Standards

In March 2006, after extensive consultation the Canadian Accounting Standards Board (AcSB) approved a Strategic Plan “Accounting Standards: New Directions.” Noting that “one size does not fit all,” the AcSB decided to pursue separate financial reporting strategies/standards for public companies, private enterprises, and not-for-profit organizations. As pointed out in a 2009 AcSB special edition on accounting activities, Canadian Generally Accepted Accounting Principles (GAAP) in its current form will cease to exist starting January 2011. Following which, Canadian publicly accountable enterprises (PAEs) defined as publicly listed companies and enterprises with fiduciary responsibilities, such as banks, insurance companies, credit unions, securities firms, mutual funds, and investment banks (but excluding pension plans), must apply International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board in preparation of their annual and interim financial statements. Private companies will be required to either follow new set of accounting standards for private enterprises issued by the AcSB in December 2009 or apply IFRSs. As for non-profit entities and pension plans, as of 2009, the AcSB was still deliberating on the reporting requirements for this type of entities, although it has been decided that non-profit entities will be allowed to use IFRSs. There is insufficient publicly available information on to what extent the new standards for private companies, not-for-profits and pension plans will conform to IFRSs. Before the deadline of January 2011, all compamies will continue to apply Canadian GAAP which are contained in part V of the Handbook as the “pre-changeover” standards. According to the 2009 KPMG report and other publications on the subject, these “pre-changeover” standards differ from IFRSs.

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IDPrinciples of Corporate Governance

Canada has undertaken significant harmonization of corporate governance rules with those of the United States. Improvements were achieved in the areas of financial reporting and corporate governance, as reported in a 2006 study by E. Waitzer. However, the Waitzer study notes that weaknesses persist due to Canada's highly fragmented regulatory and supervisory system and the overall lack of agency accountability and coordination. Further, according to information available on the Canadian Foundation for Advancement of Investor Rights (FAIR) website, Canadian shareholder rights are not at par with international best practices in many areas. The Foundation is also critical of the Toronto Stock Exchange and the securities regulators for not implementing the Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance. These findings are reiterated by the Canadian Coalition for Good Governance (CCGG) which notes that the Canadian legal requirements for public companies have not kept up with international best practices. In March 2010, the CCGG presented a brief to relevant authorities making 11 recommendations with respect to shareholder democracy for the mandated five-year review of the Canada Business Corporations Act (CBCA). As for the fragmented regulatory and supervisory system, a 2009 IMF Article IV report points that support and preliminary groundwork towards a unified national securities regulator is ongoing in Canada. Other Canadian initiatives include application of International Financial Reporting Standards for listed companies starting 2011 and the adoption of International Standards on Auditing as Canadian Auditing Standards. Also, at 8.3, Canadian Investor Protection Index which is part of the World Bank’s 2010 Doing Business Indicators is significantly higher than the average of 5.8 for regional OECD member states.

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ENInternational Standards on Auditing

In November 2005, the Canadian Auditing and Assurance Standards Board (AASB) issued an "Invitation to Comment" seeking public input regarding a proposed convergence of the Canadian Generally Accepted Auditing Standards (GAAS) with the International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB). Following extensive public consultation, the AASB concluded that most of the stakeholders strongly favored the proposal. As a result, a new strategic standard-setting approach was approved during the AASB June 2006 meeting. The AASB announced that it intends to adopt ISAs in their entirety, although there may be instances where modifications will be required. The modifications, however, will be clearly identified in the text of the new standards, the AASB noted. In line with its new strategic direction on convergence, according to a 2009 Canadian Institute of Chartered Accountants (CICA) Guide to New Auditing Standards in Canada, clarified ISAs as issued by the IAASB have been adopted as Canadian Auditing Standards (CASs). Several sources on the subject point out that clarified ISAs are adopted as CASs with minimal modifications. The new CASs are effective for audits of financial statements for periods ending on or after December 14, 2010. Meanwhile, all audits of financial statements for periods ending before this date will be performed in accordance with the existing Canadian GAAS, which, according to a 2006 comparison conducted by the AASB, differ from ISAs.

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IDAnti-Money Laundering/Combating Terrorist Financing Standard

The Financial Action Task Force (FATF) conducted a mutual evaluation of Canada's Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regime against its 40 recommendations and 9 special recommendations (SR) in 2008. The FATF's 2008 report concludes that although Canada's AML/CFT legal framework is generally in line with the FATF standards, its effective implementation needs enhancement. More importantly, the report notes that the preventive system in Canada for financial institutions is generally insufficient to meet FATF Recommendations, and Canada is non-complaint with FATF Recommendation (R) 5 on customer due diligence, which is categorized by the FATF as a core recommendation. A country needs a rating of “compliant” or “largely compliant” with the core recommendations to be considered as having an effective AML/CFT regime. At the time of the mutual evaluation, the Canadian authorities were in the process of amending existing rules and regulations and enacting new ones so as to remedy these shortcomings. More recently, the 2009 U.S. Department of State report noted that in June 2008, Canada implemented a bill amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), thereby aligning the Canadian AML framework closer to international standards. The bill introduces a risk-based approach and mandates new client identification and record keeping requirements. Furthermore, the 2009 Annual Report by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada's financial intelligence unit, notes that at the FATF’s 2009 Paris Plenary, the latter organization recognized the efforts undertaken by FINTRAC to address FATF recommendations. Also, the FATF, in its 2008-2009 Annual Report, names Canada as one of the jurisdictions that have endorsed the FATF's 40+9 recommendations.

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FCCore Principles for Systemically Important Payment Systems

The Large Value Transfer System (LVTS), which is designated as a systemically important payment system (SIPS) by the BoC, was assessed by the IMF, and its findings were published in the IMF's 2000 ROSC. The ROSC concluded that the LVTS was in full compliance with the Committee on Payment and Settlement Systems (CPSS) Core Principles for Systemically Important Payment Systems (CPSIPS). In 2001, C. Goodlet of the BoC published a study which reiterated that the LVTS was in full compliance with the CPSIPS. More recent assessments of the LVTS were carried out by the BoC and the Canadian Payments Association (CPA), which operates the LVTS. The BoC assessment of the LVTS is published on the organization's website, although no compliance levels for individual principles are assigned. The CPA assessment of the LVTS conducted in 2008 concludes that the system fully complies with all applicable CPSIPS. The LVTS is designated for oversight by the BoC under the Payment Clearing and Settlement Act. According to the IMF, the LVTS system is one of the most secure and reliable payment systems in the world. The Continuous Linked Settlement (CLS) System settles foreign exchange transactions and is also designated by the BoC as a SIPS. According to a 2009 assessment by CLS Bank, the system fully observes the CPSS CPSIPS. The other system of systemic importance in Canada is the Automated Clearing and Settlement System for Securities (CDSX), which does not come under the purview of the CPSS CPSIPS. A 2008 report based on the World Bank’s Global Payment Systems Survey of the same year evaluates Canada’s compliance with four sub components broadly based on the CPSS' CPSIPS and concludes that Canada achieves a “high level of development” with all four components.

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Financial Regulation and Supervision

FCCore Principles for Effective Banking Supervision

In its 2008 Financial System Stability Assessment (FSSA) Update, the IMF commended Canada's "highly effective and nearly unified" regulatory and supervisory framework. The banking system is regulated by a tripartite structure comprised of the Office of the Superintendent of Financial Institutions (OSFI), the Canada Deposit Insurance Corporation (CDIC), and the Department of Finance (DoF). The OSFI is the only agency responsible for supervising banks, whereas the CDIC and the DoF are in charge of developing the policy and legislative framework for the financial sector. In 2000, the IMF published a ROSC for Canada, in which it assessed Canada's observance of the Basel Core Principles (BCPs) for Effective Banking Supervision and concluded that full compliance with all BCPs would be achieved following the implementation of the proposals contained in the government's 1999 Policy Paper on Reforming Canada's Financial Services Sector. According to the 2008 FSSA Update, these changes were subsequently made and that Canada, having removed all weaknesses identified by the 2000 ROSC, now fully observes all BCPs. More recent reports from the IMF, the Institute of International Bankers, and the U.S. Department of Commerce commend the Canadian banking sector for being “the most sound in the world” and resilient in the face of the global financial crisis and attribute it to sound prudential regulation and market conduct supervision; banks strong fundamentals such as reliable funding base, conservative investments and exposures, and limits to risk taking; effective supervisory coordination; and proactive and appropriate response by the authorities to safeguard financial stability. Notably, a 2009 report by the IMF reiterates the 2008 FSSA Update’s observation that Canada’s banking regulatory and supervisory regime meets best practices, including the revised (2006) BCPs for Banking Supervision.

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CPObjectives and Principles of Securities Regulation

Securities markets in Canada operate under a system of provincial regulation and supervision, with a total of 13 regulatory authorities. The four largest regulatory agencies in Canada, namely the Alberta Securities Commission, the Ontario Securities Commission, the Autorité des Marchés Financiers, and the British Columbia Securities Commission, supervise about 95 percent of the securities market and are members of the International Organization of Securities Commissions (IOSCO). The Canadian Securities Administrators is a forum for the 13 securities regulators to coordinate and harmonize regulation of the Canadian capital markets. The IMF, in a detailed assessment of securities regulation conducted in 2008, concludes that Canada's regulatory framework for the securities market is robust and shows high levels of implementation of the IOSCO’s Objectives and Principles of Securities Regulation, as evidenced by its full compliance with 23 of the 30 IOSCO Principles, and broad compliance with the remaining seven. Shortcomings were identified with regard to the powers and responsibilities of the regulator related to the regulation and supervision of collective investment schemes and enforcement, coordination among the provincial regulators, among other issues. In this context, there have been longstanding international support and domestic drive towards moving to a national securities regulator, given that Canada remains the only industrialized country without one. With recommendations from various expert panels (notably in 2006 and 2009) on the merits of a national regulator, the federal government in Canada declared its intent in the 2009 budget to table an Act in parliament to lay the foundation for a national regulator, which may begin operation as soon as 2011. Further, a transition office has also been established in June 2009 to develop a national securities act and work with provincial regulators to enable the transition.

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IIInsurance Core Principles

In its 2008 FSSA Update, the IMF commended Canada's "highly effective and nearly unified" regulatory and supervisory framework, although it did not specifically address insurance supervision. The integrated supervisory authority - the OSFI - is under the authority of the Minister of Finance, and is responsible for the supervision and regulation of federal financial institutions, including insurance companies, banks, trust and loan companies, cooperative credit associations, fraternal benefit societies, and private pension plans. Regulation of the insurance industry is shared between the federal and provincial governments, and is mainly contained under the Insurance Companies Act of 1991. According to the IMF's 2000 Report on the Observance of Standards and Codes, which assessed Canada's observance of the Insurance Supervisory Principles (ISPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 1997, Canada fully complied with 13 of the IAIS prudential regulation principles and broadly observed the remaining one related to supervisory cooperation. However, the ISPs were consequently superseded by the new and more stringent Insurance Core Principles (ICPs), and there is insufficient information publicly available regarding Canada's compliance with the ICPs as revised by the IAIS in 2003. As for the Canadian regulators’ response to the global financial crisis, which, per a 2009 IMF report, hit the insurance industry very hard, it was deemed proactive and appropriate, and effective in safeguarding financial stability.

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Business Indicators

With an overall score of 9.23/12, Canada is at standard on the economic, legal, and political indicators that make up our Business Index. Canada is a market based economy. Total government expenditure, including consumption and transfer payments, is relatively high, comprising 39.1 percent of GDP in the most recent year for which data is available. The government promotes foreign investment and provides equal incentives to foreign and domestic investors. However, Canada is the only member state of the Organization for Economic Cooperation and Development that maintains a review process for foreign direct investment, but 2009 saw an increase in the threshold at which such a mandatory review would be triggered. Specific legislation applies to investments in certain sectors, such as the financial sector and telecommunications. Foreign investors have the right to full access to the country's legal system, with the only limitations on private property rights being the right of federal and provincial governments to create monopolies and the government's right to expropriate property in the public interest. Corruption is of no concern, reflected in Canada’s high ranking in Transparency International’s 2009 Corruption Perceptions Index.

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Global Indices & Quick Facts

Canada ranks in the 1st quintile in all the global indices benchmarking political, economic, business, and human capital climates, as shown below. Canada is a well-established market-based democracy. Although scoring high marks in all the indices, Canada displays certain shortcomings in areas such as foreign investment, and this is reflected in its scores. The Heritage Foundation and the World Economic Forum both note Canada's high tax rate, but such tax rates serve to sustain a high standard of living, as indicated in the UNDP's Human Development Index. Corruption in Canada is perceived to be extremely low, reflected in its high ranking in the Transparency International Corruption Perceptions Index.

Name Year Rank Score Quintile
Bertelsmann Transformation Status Index 2010
Heritage Foundation Economic Freedom Index 2010 7/179 80.4% 1
Economic Freedom of the World Index 2009 8/141 7.91/10 1
World Economic Forum Global Competitiveness Index 2009 9/133 5.33/7 1
Milken Institute Capital Access Index 2009 1/122 7.9/10 1
World Bank Ease of Doing Business Index 2009 8/183 N/A 1
UNDP Human Development Index 2009 4/177 0.97/1 1
Transparency International Corruption Perceptions Index 2009 8/180 8.7/12 1
Freedom House Index 2009 Free 1/7

Credit Ratings

AAA/Stable Fitch

Aaa/Stable Moody's

AAA/Stable Standard & Poor's

Macroeconomic Data

2009 GDP (Current Prices): 1229.0 billion USD (IMF)

2009 GDP (Per Capita): 36,589 USD (IMF)

2010 GDP (Growth Forecast): 2.1% (IMF)


2009 Inflation (CPI): 0.1% (IMF)

2008 Unemployment: 6.2% (CIA)


2008 Foreign Direct Investment

FDI (Inward): 44.7 billion USD (UNCTAD)

FDI (Outward): 77.70 billion USD (UNCTAD)


2007 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): 4,080 million USD (OECD)

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