*Has the proliferation of different types of financial intermediaries offering competitive products and services to meet needs for borrowing, saving and investing created the need for a “Super Regulator”? Does this diversity require a system of financial regulation that will promote real competition among all of the vendors of financial services?*
Addressing the Brooklyn Law School Centre for the Study of International Business Law recently, The Hon. Peter R. Fisher, Under Secretary for Domestic Finance at the U.S. Department of the Treasury, said developments in the world of financial services today provide a compelling case for greater coherence in the rule writing process for financial services. He makes a clear distinction between regulation – rule writing for financial services – and the ***supervision*** of financial intermediaries, however.
Mr. Fisher said a single rule writer would need to respect two principles: first, that like products and like services should receive a like regulatory treatment and, second, that distinct products and distinct services should receive distinct regulatory treatment. The rule writer need only have the wisdom to know the difference.
On the other hand, supervision – the hands on business of looking over the shoulders of the financial intermediaries – should remain divided among a number of different agencies and organisations, focused discretely on individual firms, products, and different policy objectives. Stating that there should be functional supervision as well as goal-oriented supervision, the Under Secretary said, *”Somebody is going to supervise banks and somebody is going to supervise insurance companies and somebody is going to try to protect consumers and investors. I see very few, if any, benefits from rolling all of these different purposes and objectives into a super-supervisor.”*
In financial services the chartering regulatory authority has an incentive to promote the “soundness” of its particular form of intermediation by limiting the competition. Each chartering regulatory authority has just a single corner or piece of the total capital structure of financial intermediation and, thus, has an incentive to “protect” the revenue sources of its franchisees in order to assure their “soundness”.
The objectives of the rule writing authority, or the rule writing process, should ensure that it promotes rather than hinders competition among forms of intermediation. To do this, the rule-writing process must respect the different forms intermediation: products that are distinctly banking or distinctly insurance should receive distinct treatment, but for products overlapping industries, what is needed is a set of like rules for like products.
Regardless of what mechanism evolves (single financial rule writer, a rule writing committee, or separate agencies that would not stand in the way of competition at the frontiers between intermediation forms and firms) the objective should be greater coherence in rule writing to promote effective competition.
The Treasury Official said the US will not put federal regulation and financial supervision into a single agency as concentrating so much regulatory and supervisory power in one place would not be within the bounds of the political tradition of the United States.
Financial supervision needs to be focused on specific lines of business and sets of risks.
While the existence of financial “supermarkets” and conglomerates does pose a challenge for supervisors, it does not follow that there should be a single financial supervisor.
Supervision sometimes tends to focus on the “negative tail” outcomes – i.e. making sure that supervised entities avoid the most harmful practices. The more effective way to avoid negative tail outcomes, however, is to focus on improving median and mode performance and to encourage “positive tail” outcomes.
A compelling case for financial supervision is as a means of more rapidly disseminating best practice among firms that would fail less frequently than would otherwise be the case.
For almost thirty years the industry has been stumbling toward recognition that there should be a common set of rules for financial intermediaries while, at the same time, seeing the need to maintain discrete supervisors for different types of financial firms.
The Basel Committee on Banking Supervision began to write common rules, eventually leading to the more than twenty-year effort to write common capital rules for internationally active banks. Also internationally, in recent years, there have been increasingly frequent joint efforts among bank, securities and insurance regulators.
In the United States, the President’s Working Group on Financial Markets, the FFIEC, and numerous congressionally mandated joint studies over the years all reflect efforts of one kind or another to harmonize regulatory practices.
In The Bahamas, the financial services industry regulators include:
* Central Bank of the Bahamas
* Inspector of Financial & Corporate Service Providers
* Public Utilities Commission
* Registrar of Insurance Companies
* Securities Commission of The Bahamas
The Bahamas Compliance Commission was established as the anti-money laundering supervisory body for the “non-traditional” group of financial institutions, which includes persons that provide financial services that are susceptible to abuse by criminal elements seeking to launder proceeds of criminal conduct. The Financial Intelligence Unit, in addition to being charged with receiving, analysing, obtaining, and disseminating information relating to the proceeds of an offence under the Proceeds of Crime Act 2000, also has the responsibility for informing the public, financial and business entities of their obligations under counter-money laundering measures.
All Financial Services Industry Regulators and Supervisors meet on a scheduled basis to discuss issues such as overlaps in function. Where appropriate, a Memorandum of Understanding (MOU) can be initiated to minimise, for example, the number of inspections required under current legislation and regulations. The possibility of an eventual “Super Regulator” — i.e. consolidation of all industry regulatory entities — reportedly is under review.