Michael W. Taylor

Abstract

This article explores the fragmented regulatory structure of U.S. financial markets in light of the recent financial crisis and examines two regulatory reform approaches originating in the United Kingdom. The first approach calls for the creation of a unified regulatory agency responsible for overseeing all major segments of the financial services industry. The second, known as the “Twin Peaks” model, proposes dividing regulatory authority between two agencies: one dedicated to overseeing the safety and soundness of financial firms, and the other focused on regulating their sales practices. The article describes the debate in the UK that preceded the establishment of the unified Financial Services Authority (FSA), explores the justifications for such a single regulator, and discusses the UK’s rejection of the Twin Peaks approach. It then examines the debate surrounding the role of a central bank, such as the Bank of England, in financial oversight. The article reviews U.S. regulatory reform efforts in light of the British experience with unified regulation and concludes that some variation of the Twin Peaks model would likely be more successful in the United States than a single-regulator approach.

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