Hong Kong's International Financial Centre: Retrospect and Prospect

Immediately following the crisis of 2008, however, a partial reversal is taking place in the
UK. Macro-level responsibilities for financial supervision are moving back to the Bank and to
its Financial Policy Committee. Still not clearly defined, the increasingly common term ‘macroprudential’
suggests a mission keyed on systemic stability. In addition, the government has
decided to abolish the FSA and divide its remaining cross-sectoral supervisory functions between
two new agencies: the Prudential Regulatory Authority, which will be a subsidiary of the Bank,
and the Consumer Protection and Markets Authority. If all goes according to plan, the former
will continue the detailed work of the FSA entailed in examining banks and other intermediaries
delivering still-comparable services. The latter will serve as the guardian of fairness and the
‘integrity’ of markets across all financial sectors. In the financial press, such a division of labour
has come to be called a ‘twin peaks’ approach.
Something comparable but not identical is taking place in the United States, where the
monetary and financial stability mandates of the Federal Reserve are being enhanced, as is its
role as supervisor of large, complex financial institutions, whether they are incorporated as bank
holding companies or not. Simultaneously, however, the regulatory responsibilities of the
Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Federal
Insurance Office (newly established in the Treasury Department), and other agencies in a
complicated federal system of government are not being taken away or consolidated. Instead,
given the now-widely perceived need for greater cross-sectoral coordination, three new entities
were established: the Financial Stability Oversight Council, chaired by the Secretary of the
Treasury, the Office of Financial Research in Treasury, and a new agency for consumer
protection. Although this complicated structure can hardly be recommended in all its details as a
new model for Hong Kong or anywhere else, it does tend in the same direction as the UK in its
attempt to close regulatory gaps and reduce overlaps by focusing attention on the same ‘twin
peaks,’ consumer protection across the board and prudential supervision of intermediaries
defined more by what they do than how they are legally constructed.
Although the US and the UK have obviously not wholly abandoned sectoral regulation and
supervision, their reform efforts suggest the wisdom of moving in a more functional direction.
Australia, Canada, and Japan have taken similar steps to differentiate and coordinate regulatory
tools across various missions like systemic stability, safe conduct by intermediaries, and
consumer protection. At the national level in Europe, some governments (France and the
Netherlands) have moved to combine such missions under a single structure separate from the
central bank. What they continue to share with other member-states of the euro-area is a
reluctance to place responsibilities for financial regulation and supervision inside the European
Central Bank.
These structural choices are obviously complicated, difficult, and tied to deeper factors in
their unique settings. Before drawing out the potential implications for Hong Kong, however,
that complexity should not be allowed to obscure two conclusions unchanged by the crisis of
2008.
70