Approaches to Financial System Regulation: An International Comparative Survey

Abstract

In the aftermath of the 2008 global financial crisis (GFC), and the catastrophic scale of regulatory failure, much attention has been paid to the various systems of financial system regulation currently in force. Of the total of four financial regulatory systems currently in use, ‘Twin Peaks’ has garnered the most interest, and gained widespread recognition; as has Australia both as an exemplar of ‘Twin Peaks’, and in its success in navigating the worst of the GFC. As a result of these factors, several countries have moved or are moving towards a ‘Twin Peaks’ system, most notably the Republic of South Africa (RSA) and the United Kingdom (UK). In an effort to place ‘Twin Peaks’ in context, this article makes a comparative analysis of the four systems in use, along with descriptive case studies. Particular attention is paid to the failings of the previous UK regulatory arrangement, and the success of Singapore, in order to demonstrate that the solution to successful prudential regulation, and regulatory enforcement, is not simply the regulatory architecture. It is as much a function of regulator culture, inter-agency co-ordination, and regulatory philosophy. Additional analysis is also provided for Germany, due to the importance of its banking sector. The four systems are described in the following order: first, the institutional or traditional approach (with emphasis on China, Mexico and Hong Kong); second, the functional approach (with a description of Italy and France); third, the integrated approach (as employed in Japan, Singapore, Germany, and formerly in the United Kingdom); and finally, fourth, the ‘Twin Peaks’ approach (as found in The Netherlands, Switzerland, Qatar, and Spain).