Twin Peaks The Legal and Regulatory Anatomy of Australia's System of Financial Regulation

Abstract

This paper is one of a series of working papers that explore various aspects of Australia’s system of financial regulation and the relevance of its experience to reform in other countries. Adopting a broad perspective that outlines the context in which the system operates in Australia, it examines the anatomy of the ‘twin peaks’ model as it exists in Australia from a legal and regulatory perspective and how it deals with fundamental regulatory issues. The twin peaks system is functionally based. The functions for financial regulation are consolidated into two regulators: the Australian Securities and Investments Commission, which is responsible for the regulation of companies, market conduct and consumer protection, and the Australian Prudential Regulation Authority, which is responsible for prudential regulation. Under this model, the central bank, the Reserve Bank of Australia, remains responsible for monetary policy and financial stability, including ensuring a safe and reliable payments system. The two other models with which the twin peaks model is usually compared are the institutional model, under which the different sectors - namely, banking, insurance and securities - are supervised by different regulators, and the integrated model, under which supervision is consolidated in a single integrated regulator, or ‘super-regulator’, as was previously the case in the United Kingdom before it adopted the twin peaks model. The relevance of the twin peaks model is becoming greater as an increasing number of jurisdictions have adopted, or are considering adopting, this model. It has also been of recent interest in Australia in the context of the Financial System Inquiry of 2014, which reviewed Australia’s financial system and examined many issues that are relevant to the ways in which the twin peaks model works in Australia.