Legal Aspects of Financial Services Regulation and the Concept of a Unified Regulator

Kenneth Kaoma Mwenda

Senior Counsel

Legal Vice Presidency

The World Bank

Over the years, financial regulation and supervision in many countries has been organized around specialist agencies that have distinct and separate responsibilities for banking, securities, and insurance. In recent years, however, there has been an emerging trend in some countries towards restructuring the financial supervisory function, and in particular creating unified regulatory agencies (agencies that supervise two or more of these areas). The fact that a number of countries are now moving towards integrating the different supervisory functions into a single agency, and that different types of financial services and products continue to spring up in the financial sector of many countries, are indications of the changing global landscape of the financial services industry. Equally important as indicators of the evolving course of financial services regulation are increases in the number of countries where universal banking is practised and in the numbers of parent and subsidiary companies providing different types of financial services and products.

This study examines the policy bases of different countries adopting various regulatory and institutional models of unified financial services supervision and addresses some of the key characteristics of these models. The study also highlights the progress achieved by the unified regulators in adopting a consistent framework for the regulation and supervision of all financial intermediaries they oversee. Practical problems faced by countries in setting up unified regulators are identified, and the study highlights important legal and policy issues that should be considered when developing regulatory and institutional models of unified financial services supervision.

This study deals with legal and policy issues underpinning the development and strengthening of the regulatory and institutional framework for unified financial services supervision. The study discusses developments in a number of jurisdictions, among them Australia, Canada, Estonia, Germany, Hungary, Ireland, Latvia, Malta, the Scandinavian countries, the United Kingdom, and the United States.

Chapter 1 examines conceptual issues to be taken into account in designing a sound regulatory and institutional framework for financial services supervision. The chapter also provides a working definition of “regulation” and delves into the intricacies of designing the appropriate regulatory framework. Chapter 2 analyses the concept of an independent financial services regulator, arguing that a unified regulator that is both independent and accountable would help promote the development of a sound financial sector. Chapter 3 discusses the concept of a unified regulator, examining the question of whether every country should adopt a model of unified financial services supervision. Chapter 4 provides country studies, addressing the efficacy of the framework for unified financial services supervision in Latvia, the United Kingdom, and the Scandinavian countries. Finally, Chapter 5 spells out policy recommendations and possible constitutional and legal challenges that might be encountered when a country is considering unifying its regulation of financial services.