Don’t miss the boat on financial reforms

Angela McClellan has worked on G20 issues at Transparency International (TI) for the past two years. She looks forward to this weekend’s meeting in Toronto.

When the financial crisis struck hard in 2008, the Group of 20 nations went into high gear to facilitate bail-out packages for banks and companies. Governments coughed up unprecedented sums to shore up balance sheets and reduce job cuts. There was plenty of talk of introducing transparent financial reforms based on accountability and integrity to help ensure this wouldn’t happen again.

This weekend when the G20 meets in Toronto, they may congratulate themselves on producing pages of update reports, but as yet there is little concrete action. My greatest fear is that with economic green shoots starting to poke through, and the high decibel lobbying (paid for by banks) against greater regulatory restrictions, the future of any kind of meaningful reform agenda is now in jeopardy.

This would be a disaster, particularly for developing countries. The financial crisis, according to World Bank estimates, is already keeping more than 64 million people who might have escaped poverty in 2010, terribly poor. Another financial meltdown cannot be allowed to happen, which is why it is so important to act now and act strongly.

A reform of the financial system must put transparency, integrity and accountability centre stage. Take the issue of illicit funds, for example. The cross-border flow of global proceeds from criminal activities, corruption, and tax evasion is estimated at between US $1 trillion and US $1.8 trillion per year, sums that dwarf the budget for meeting the United Nations Millennium Development Goals. The G20 pledged to eliminate tax havens. It claimed the days of banking secrecy were over.

Not true. It is just as easy as it was at the start of the crisis to open an offshore account in several jurisdictions. Corrupt acts and illicit gains can still be hidden in secret accounts and through shell companies. Global lists have been created categorising compliance and identifying areas of concern, but without any significant action against non-compliers, there is little incentive to change or shut up shop.

Already this year Transparency International (TI) has sent two open letters to the current presidents of the G20, the prime minister of Canada, Steven Harper and the president of Korea, Lee Myung-bak stressing our agenda. We feel it is extremely important to keep the pressure on and look to Toronto, where the heads of state will all be arriving at the end of the week, to follow up words with actions. We’ve even created our own petition calling for more transparency.

We have our wish list of recommendations which we believe are prerequisites for a strong and equitable global financial system.

TI has long supported the United Nations Convention against Corruption and the G20 has a duty to press member governments to enforce this fully.

We are also pushing for comprehensive cross-border regulations to mandate stronger corporate governance in financial services firms and greater accountability on the part of boards of directors.

We want financial products to have clear and accurate buyer beware information so that people won’t be cajoled into taking on mortgages, for example, that they can’t afford – the catalyst for the collapse in the housing market.

We also believe that a single, understandable set of global accounting standards for asset valuation in financial services firms is necessary. And there should be specific rules in place to regulate companies whose size poses a risk to the whole system – the so-called too big to fail institutions.

One key area of concern is conflicts of interest between credit rating agencies, auditing firms, financial firms and the public sector. These relationships need to be spelled out and clarified. Our list of recommendations goes on, but these are just some highlights.

It remains to be seen whether the G20 will be able to collectively seize the opportunity for sustainable regulatory reform to avoid future financial crisis. This is no time to miss the boat.