Is Hong Kong a potential role model for objectives-based financial regulations?

Abstract

Key points: Objectives-based legislation—or laws which focus on achieving particular and concrete outcomes—has become a new and important tool that financial sector regulators use to tackle large and varied financial system risks. In this article, we describe the prospects and problems of implementing objectives-based financial regulation in Hong Kong—in the form of a Twin Peaks regulatory structure. Such Twin Peaks regulatory structures vest regulatory authority in two agencies—one dealing with macro-prudential policy and monitoring as well as one dealing with policing market conduct. By describing the way Hong Kong’s legislators would adopt such objectives-based legislation by putting a Twin Peaks regulatory structure in place, we hope to shed light on the broader trend in academic and practitioner circles toward thinking about how to use objectives-based legislation to tackle complex systemic risks. Such an approach may also reduce the use of patchworks of complex inter-agency agreements and rulemaking between traditional regulators as they try to solve large and difficult regulatory problems.