This brief description of the legislative framework might lead one to suppose that the UK system is primarily statutory - yet the securities side is often described, at least by comparison with the US system, as one of self-regulation. Indeed, some argue that it is excessively self-regulating and, therefore, unreasonably lax. We would reject that last charge. And, in practice, the distinction between statutory and self-regulation is not black and white. The UK system has elements of both. Prudential supervision of insurance firms is carried out directly by a government ministry, which is unambiguously Government regulation. Banking supervision is carried out by the Bank of England. Constitutionally, this is not ‘Government’ regulation, but rather regulation by a public body which is authorised by specific Act of Parliament. Certainly no one describes what we do as self-regulation, even though the Bank of England is a bank. On the investment side, the picture is more complicated. The Government has delegated its powers to the Securities and Investments Board. The SIB’s governing board includes people who are active in financial services, but they are appointed by the Treasury and the Bank of England (indeed I am one of them) and are required to act in the public interest. Again, this does not look like self-regulation. However, the various front-line regulators are called, in the Act itself, ‘self regulating organisations’ (SROs). Their boards include a high proportion of active practitioners, elected by the industry to represent its views. Practitioners are also heavily involved in policy discussions, rule-making and enforcement functions.

There is undoubtedly a case to answer in that area, as both the SIB and the SROs would acknowledge. But the legislation we have explicitly dictates a two-tier structure. It is also true that institutions now tend to be involved in a variety of different businesses. Banks own securities houses, fund managers, and insurance companies. Insurance companies are diversifying into banking, and so on. So that even though there should always be a lead regulator, looking at the overall position of the business, institutions still face the costs of complying with the requirements of several regulators. BIS Review 21/1997  -5-  But the question underlying these arguments about complexity and overlap is more fundamental. Should regulation be based around institutions (it is institutions which fail, after all) or around functions or types of business which call for specialist regulatory knowledge? The UK system is organised neither along wholly functional nor wholly institutional lines. In today’s markets, where firms are a mass of subsidiaries and business units, no major market participant deals with a single regulator across all its businesses. Similarly, no regulator has unique responsibility for regulating one function of each business. The insurance operation of a firm, for example, is covered by separate prudential and conduct of business regulators. Most people involved in financial regulation would recognise this description of the problem. But determining how to resolve it is not straightforward, as evidenced by the wide variety of proposals for change which have been advanced.