Is Hong Kong a potential role model for objectives-based financial regulation?

Abstract

... Should Hong Kong radically change the core of its financial law—putting in place a Twin Peaks financial regulatory structure? Unlike traditional regulatory structures, these Twin Peaks structures consolidate regulatory power over the financial system in two government bodies. The first body deals with macro-prudential regulation—making sure that economic regulations contain risks and minimize the likelihood of financial crises and gross inefficiencies.1 The second ‘twin’ focuses on policing market behaviour—such as controlling insider trading and so forth.2 The global financial crisis in 2007–2008, and the widespread drop in securities prices in the developed world, led several jurisdictions’ governments to consider alternative methods of regulation. Discussions about a move toward a Twin Peaks regulatory model in the United States—and the actual design of the UK’s regulatory framework putting in place such a structure—illustrate the widespread interest in such regulatory structures.3 While scholars and practitioners alike recommended that jurisdictions like the UK adopt such Twin Peaks regulatory structures, the case for such a radical rewrite of its financial law is much less clear for jurisdictions like Hong Kong—which did not suffer from the 2008 crisis in the same way. In places like Hong Kong, the costs of adopting objectives-based financial regulation—particularly regulation putting in place a Twin Peaks financial regulatory structure—seem to outweigh the benefits. Is this true? In this article, we illustrate a broader question in legal theory using a specific case—namely whether Hong Kong should move toward a Twin Peaks financial regulatory approach. We use the city-state to assess how objectives-based legislation might provide a new paradigm for creating and organizing regulatory agencies.4