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The Structure of Financial Supervision: Approaches and Challenges in a Global Marketplace

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A comprehensive report, The Structure of Financial Supervision: Approaches and Challenges in a Global Marketplace, released 6 October 2008 by the Group of Thirty, (G30), an international body comprising central bank governors, leading economists, and private financial sector experts, provides insights into the current challenges facing the global financial system.

It compares and analyses the financial regulatory approaches across 17 jurisdictions including Australia and is a comprehensive and valuable report to inform future banking regulation reforms.

Sarah Woodhouse, Deloitte Wealth Management and Regulatory leader who was involved in supporting some of the Australian input into the report said, “It is pleasing that the report singled out the supervisory oversight model used by Australia and the Netherlands as closest to ‘optimal’. It also highlights it as the one that countries including France, Italy, Spain, and the United States of America are ‘engaged in debates over adopting'.”

She said, “Of the four principal models of supervisory oversight, Australia’s and the Netherlands’ Twin Peaks approach is seen as ‘maybe the optimal means of ensuring that issues of transparency, market integrity, and consumer protection receive sufficient priority’ ."

The Report by the G30 Regulatory Systems Working Group was compiled with the active support of the Deloitte Center for Banking Solutions.

The four approaches to supervision in the G30 Report

Institutional approach	The Institutional approach is one in which a firm’s legal status (for example, a bank, broker-dealer, or insurance company) determines which regulator is tasked with overseeing its activity from both a safety and soundness and a business conduct perspective. (China, Hong Kong, and Mexico use this approach).
Functional approach	The Functional approach is one in which supervisory oversight is determined by the business that is being transacted by the entity, without regard to its legal status. Each type of business may have its own functional regulator. (Brazil, France, Italy and Spain).
Integrated approach	The Integrated approach is one in which a single universal regulator conducts both safety and soundness oversight and conduct-of-business regulation for all the sectors of financial services business. (Canada, Germany, Japan, Qatar, Singapore, Switzerland, and the United Kingdom).
Twin Peaks approach	The Twin Peaks approach, a form of regulation by objective, is one in which there is a separation of regulatory functions between two regulators: one that performs the safety and soundness supervision function and the other that focuses on conduct-of-business regulation. (Australia and the Netherlands).