Investment law – 2a
Domestic institutional structure: competing models
Four basic models:
The institutional model; Allocates responsibility amongst multiple specialist
regulators on the basis of distinctions between particular types of firms (e.g banks,
brokerage firms, insurance companies, etc.)
The functional model: allocates responsibility amongst multiple specialist regulators
on the basis of distinctions between specific lines of business or activities
The objectives based model allocates responsibility on the basis of specified
regulatory objectives (e.g Goodhart et. Al’s mountain range or taylors twin peaks.)
The integrated model: Combines rule-making, supervision and enforcement across
the banking, securities and insurance industries, may also integrate the central bank
function
In practice, financial regulators rarely fit neatly within one of these models
There is also some disagreement to note as to the definitional boundaries between,
for example the institutional and functional models
Within a given model there will often be significant institutional differences in, for example:
Regulatory objectives
Funding – you make it a government backed entity, all their money comes as a result
of the treasury
Supervisory responsibilities
Enforcement mechanisms – this differs between institutional designs
MOU Memorandum of understanding – the unifying factor for the HM treasury, bank of
England and FSA prior to the financial crisis.
Irelands integrated model was made up of the irish financial services regulatory authority
(division of Bank of Ireland) – they werte responsible for anything, didn’t matter what
industry they were involved in, they all came under the bank of Ireland.
USA was a mess
Australia
, Investment law – 2a
There was an obsewrvable shift toward the integrated model in several countries prior to
the crisis (Abrams and Taylor, 2000)
This shift was often justified on the basis of the globalisation of the financial services
industry and the integration of banking, securities and insurance markets.
You never really know who you are indebted to, the same as the bank loaning out your
money.
Insurance now runs as a method of instead of having a bank account with your name on it,
the insurance payments you make are no longer just sitting there, however they are being
actively traded in, they invest it in financial markets.
Domestic institutional structure: competing models
The poitential advantages of the integrated model
A more comprehensive or olistic approach to regulation
Lowrr information and coordination costs
Higher de facto accountability
Being a one stop shop for regulated firms and consiumers
Query however whether we need an integrated regulator to extract
thesenadvantages
What about governance mechanisms designed to enchance information flow and
coordination between multiplke specialiost regulators.
Domestic institutional structure: competing models
What are the potential drawbacks of the integrated model
Balancing competing regulatory objectioves
The stifling of regulatory competition
Dimished accountability
Practical incompatibility
Domestic institutional structure: competing models
Four basic models:
The institutional model; Allocates responsibility amongst multiple specialist
regulators on the basis of distinctions between particular types of firms (e.g banks,
brokerage firms, insurance companies, etc.)
The functional model: allocates responsibility amongst multiple specialist regulators
on the basis of distinctions between specific lines of business or activities
The objectives based model allocates responsibility on the basis of specified
regulatory objectives (e.g Goodhart et. Al’s mountain range or taylors twin peaks.)
The integrated model: Combines rule-making, supervision and enforcement across
the banking, securities and insurance industries, may also integrate the central bank
function
In practice, financial regulators rarely fit neatly within one of these models
There is also some disagreement to note as to the definitional boundaries between,
for example the institutional and functional models
Within a given model there will often be significant institutional differences in, for example:
Regulatory objectives
Funding – you make it a government backed entity, all their money comes as a result
of the treasury
Supervisory responsibilities
Enforcement mechanisms – this differs between institutional designs
MOU Memorandum of understanding – the unifying factor for the HM treasury, bank of
England and FSA prior to the financial crisis.
Irelands integrated model was made up of the irish financial services regulatory authority
(division of Bank of Ireland) – they werte responsible for anything, didn’t matter what
industry they were involved in, they all came under the bank of Ireland.
USA was a mess
Australia
, Investment law – 2a
There was an obsewrvable shift toward the integrated model in several countries prior to
the crisis (Abrams and Taylor, 2000)
This shift was often justified on the basis of the globalisation of the financial services
industry and the integration of banking, securities and insurance markets.
You never really know who you are indebted to, the same as the bank loaning out your
money.
Insurance now runs as a method of instead of having a bank account with your name on it,
the insurance payments you make are no longer just sitting there, however they are being
actively traded in, they invest it in financial markets.
Domestic institutional structure: competing models
The poitential advantages of the integrated model
A more comprehensive or olistic approach to regulation
Lowrr information and coordination costs
Higher de facto accountability
Being a one stop shop for regulated firms and consiumers
Query however whether we need an integrated regulator to extract
thesenadvantages
What about governance mechanisms designed to enchance information flow and
coordination between multiplke specialiost regulators.
Domestic institutional structure: competing models
What are the potential drawbacks of the integrated model
Balancing competing regulatory objectioves
The stifling of regulatory competition
Dimished accountability
Practical incompatibility
