The United States’ financial regulatory structure is notoriously complex and defies categorisation. The structure embodies some of the principles of the Twin Peaks model, and yet a foggy mountain range better describes the US regulatory architecture – multiple peaks with murky demarcation. Criticism of the US structure is, at the same time, too easy and too hard. The structure is easy to criticise because of blatant overlaps that scream inefficiency, yet criticism is difficult because the clunky and complex structure works reasonably well, or at least is not obviously the primary cause of recent regulatory failures. Certainly, the Global Financial Crisis exposed regulatory gaps, the under-regulated shadow banking system is the classic example. Yet the then existing regulatory architecture did not account for the failure of agencies to utilise their authority in the run-up to the crisis. Structure may be important, but leadership is essential. This chapter begins with an overview of the US financial regulatory structure followed by a closer examination of the financial stability architecture in the US following the Global Financial Crisis and the very recent developments in that arena. Those recent developments are then evaluated alongside the Twin Peaks model.

As the Global Financial Crisis has demonstrated, any complex system is vulnerable to fragility without purpose and vigilance. The tentacles of the finance industry traverse state boundaries. They create moral and economic hazards as well as opportunities. Each poses legitimacy and authority implications. Failure to address those threats have contributed to a populist turn, which poses the risk of further policy uncertainty and instability. Responding to this crisis through resilience as either metaphor or organising framework is, however, problematic. This chapter argues that notwithstanding its increasing usage by international bodies such as the G20, resilience is not a neutral concept. Privileging resilience as an end in itself may prove counterproductive unless underpinned by a normative reset of the purpose of the corporation and the market, and the duties and responsibilities each owe to society. It concludes that without clear definition of purpose, and accountability, regulatory structural form is irrelevant, as demonstrated by the failure and ineffectiveness of the Twin Peaks model in Australia.

This chapter argues that a Twin Peaks model designed around financial stability and market conduct regulators supervising all financial sectors would overcome the sectoral model’s limitations. This regulatory change supports the evolution and competitiveness of Hong Kong as an international centre for finance and technology. The proposed reform agenda concludes that technological developments, cost-effective and proportionate regulatory reforms, and a modern regulatory architectural design for setting internationally recognised standards of smart regulation enabled by regulatory technology or RegTech must be the path forward.

Financial consumer protection requires both Twin Peaks regulators as it requires a safe and stable financial system and fair conduct towards consumers. Consumer protection contributes to the objectives of both regulators. This chapter argues that while the mandates of the prudential and conduct regulator are distinct, and each has different regulatory approaches, there is a growing convergence between the two in areas such as the conversation on culture, and complementary approaches in matters of concern such as home lending. Cooperation between each regulator is essential to protect financial citizens. Although significant steps have been taken to protect consumers, there is still consumer detriment. The extent of this will not be fully known until the next crisis.

For almost a decade, South Korea has failed in its quest to scale the ‘Twin Peaks’. Every presidential election cycle and congressional term has produced numerous proposals to reform the Korean financial regulatory architecture, along the lines of the Twin Peaks model. This chapter first outlines the 2011 savings bank crisis, and the subsequent botched architectural reforms, with a focus on the proposed Twin Peaks approach in Korea. It then examines the risks of the revolving door phenomenon in general, and specifically in the context of the 2011 savings bank crisis. A brief description and analysis of Korea’s anti-revolving door provisions, and revisions introduced in 2011, follows. Finally, the chapter analyses the implications of the revolving door phenomenon for the Twin Peaks regulatory architecture.

This chapter looks at ‘Twin Peaks’, not as distinct supervisory entities with reasonably well-defined responsibilities, as this is covered elsewhere in this book. Rather, it looks at the supervision of a concept ‘that must be considered by both ‘peaks’ – that of ‘culture’ and, in particular, ‘macro-culture’. The chapter concludes by pointing out that the ‘Twin Peaks’ are not independent but sit on shared foothills, beset by common problems – in this case, the need to understand the various ‘cultures’ of the individual firms that both peaks supervise. It makes little sense for one regulator to measure and try to ‘influence’ cultures in one way in a firm if another supervisor uses different definitions, measures and influencing mechanisms for the same firm. At the very least, there is a need for regulators to come to a shared understanding of problems that they have in common, such as how to influence the cultures of firms that they supervise. The chapter proposes a novel approach to addressing this quite complex problem.

In recent years, a number of proposals were put forward to change the financial regulatory model in Israel. One proposal called for the adoption of the single regulatory model, and for the establishment of one financial regulatory agency. In contrast, in 2015, the Israel Securities Authority called for the adoption of the Twin Peaks model, under which the Securities Authority would serve as the conduct-of-business regulator, and would oversee consumer protection issues for the entire financial system. To date, these proposals have not materialised in practical initiatives. This chapter examines whether, and to what extent, the Twin Peaks model of financial regulation can serve as a model for Israel.

This chapter examines the legal and institutional regulatory framework for China’s financial markets, and evaluates how China may need to restructure its regulatory regime in order to keep up with market developments. The chapter first provides a detailed discussion of the current Chinese financial regulatory framework, and then identifies its major structural problems. In search of an appropriate agenda for reform of China’s financial regulatory structure, it conducts a comparative analysis of financial regulatory structures in overseas jurisdictions, as well as a contextual consideration of China’s local conditions. Finally, it discusses the recent developments and their implications for the future prospects of China’s transition to a Twin Peaks model of financial regulation.

New Zealand’s response to the Global Financial Crisis was to accelerate the introduction of wide-ranging legislative reform based on the Twin Peaks model of financial regulation. Ten years on from the GFC, it is timely to consider this reform. This chapter examines how Twin Peaks has been implemented in New Zealand, whether regulatory vulnerabilities remain and how matters such as regulatory overlap and coordination between regulators are dealt with. In addition, because New Zealand and Australia have a unique interdependence that impacts on regulation, this chapter further looks at mechanisms for cooperation between the two jurisdictions.

The European financial supervisory architecture is based on a sectoral model with separate authorities for banking, insurance, and securities and markets. New developments in the European financial sector make this sectoral structure increasingly out of date. To deal with these challenges, the EU should commit to a Twin Peaks model as a long-term vision for supervision. The first peak would conduct prudential supervision, focusing on the health and soundness of financial firms. As these financial firms have become increasingly interwoven, the vision of integrated cross-sector prudential supervision is increasingly compelling, even though legal obstacles suggest that this cannot be implemented at the European level in the near term. The second peak would be a strong markets and conduct-of-business supervisor. This supervisor would focus solely on the proper functioning of markets, and the fair treatment of consumers. This Twin Peaks model should guide Europe’s efforts to deal with current challenges.

This chapter discusses the role of the central bank in the design of the Twin Peaks model in South Africa, including the structure of the prudential regulator within the South African Reserve Bank (SARB), the mandate of the SARB in the Twin Peaks regulatory framework and the various design choices that South Africa has made in relation to the central bank.

As China’s financial system becomes more complex and integrated, interest in and discussion of potential structural reform has intensified. In particular, many commentators advocate for a move towards the Twin Peaks model, along the lines of Australia’s experience. This chapter begins with an overview of China’s financial sector and sources of risk to lay the foundation for a country-specific study. There follows a brief discussion of China’s current financial regulatory architecture and an examination of how the authorities have responded to the sources of risk laid down at the start of the chapter. The shortcomings of the regulatory responses to date have sparked a call for reform of the regulatory structure and these reform proposals are subject to scrutiny. It is concluded that Twin Peaks might serve as a model for China, which, as revealed, is not the latest reform trend announced by the Chinese government and what can be done next to address the unresolved problems after the implementation of the latest reforms.

This chapter describes the experiences with the Twin Peaks framework in the Netherlands, based on various examples from Dutch practice. Based on this analysis, the chapter identifies lessons and best practices for the governance of financial supervision in a national context and from a European perspective.

This chapter evaluates the first ten years of the European Supervisory Authorities (ESAs), examines the Review of the European System of Financial Supervision (ESFS) and assesses the accomplishments of the ESFS. The chapter concludes by suggesting that it is difficult to argue that the EU has come closer to a Twin Peaks supervisory model. The creation of the SSM was a big step in that direction, but the ESAs go more towards strengthening functional supervision, at different speeds.

Over the past two decades, an increasing number of jurisdictions have moved towards a model – or family – of financial regulation that is known as Twin Peaks. This model was pioneered in Australia following recommendations by the Wallis Inquiry, which was established in 1996 to review the financial system. The model separates financial regulation into two broad functions: market conduct regulation (which includes consumer protection) and prudential regulation. Each of these functions is vested in a separate ‘peak’ regulator. The Twin Peaks model has subsequently been adopted by the Netherlands, Belgium, New Zealand, the United Kingdom and South Africa. The model has also been considered in the United States. This chapter outlines the design of the Twin Peaks model and the following chapters in the book.