The American politician most associated with financial regulatory reform has launched an appeal for a division between conduct and prudential regulators in his own country.

The UK's post-crisis financial regulatory system is double-headed, with one regulator apiece for prudential matters and 'conduct' matters; arguments for such a system are gaining traction in other parts of the world. The American politician most associated with financial regulatory reform has launched an appeal for such a division in his own country. In 2009 he proposed a consolidation of the four US agencies that inspect banks into a single regulator, ending decades of divided supervision.

Chris Dodd, the former senator who provided the driving force behind the Dodd-Frank financial reform legislation, believes that the existence of too many 'oversight agencies,' as he calls them, has caused confusion and that only one regulator should deal with systemic risk. In the US, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation are all prudential regulators. Many of them at one time or another have admitted that the plethora of agencies is detrimental to good regulation.

The London Financial Times has quoted him as saying of the Dodd-Frank legislation: “I would’ve established a single prudential regulator and gotten rid of the rest...I got about three votes at that time, but the idea has life.”

The 'Twin Peaks' model, described in the mid-1990s by its originator, Dr Michael Taylor of the London Guildhall University, in a book edited by this author, is the regulatory equivalent of Montesquieu's call for the 'separation of powers' in the wider world of government. It separates a country's financial regulation between two bodies - a prudential regulator that keeps an eye out solely for systemic risk; and a 'market conduct regulator' (to use the term in South Africa, where such a reform is on the stocks) that concentrates on how fairly firms treat their customers or each other.

Taylor's idea - borne out, many believe, by the events of 2008 and thereafter - was that if a country were to have a single financial regulator, that body would find it impossible to keep its eye on the 'big picture' of market stability, spotting bubbles and monumental industry-wide scams that were doomed to fail, because it was responding constantly to the more lowly demands of 'conduct regulation.' Taylor's main reason for this was that these themes, rather than deliberations about prudential safety, tend to fill politicians' mailbags and dominate their thinking. Many a regulator claims to be free of politicians, but none truly is. Taylor's book, "Regulatory Leviathan," was published in 1998.