I’m not a fan of the twin peaks approach to financial regulation - the UK's current framework – going back to when I first heard it being discussed in the mid-90s. The financial services landscape is way too complex and volatile to be so neatly divided in two.
Which isn't to say there's a definitively right way of structuring financial regulation, just less bad ones. Another less good structure for me (also binary) - between wholesale and retail regulation - was adopted by the FSA in 2004 and played its own part in the run up to the crisis.
The basic idea of twin peaks is to regulate prudential and conduct matters separately, though the UK version is more complicated in that only firms deemed systemically important - all deposit takers and insurers, plus the biggest investment banks - are prudentially supervised by the PRA. All conduct regulation (including the big banks and insurers), as well as all other prudential regulation (including of the likes or BlackRock), is done by the FCA.
My other objection to twin peaks, beyond the general prejudice that nothing as complex as financial services is well served by an approach as simple as either/or, is that a major prudential problem will, almost invariably, also be a major conduct problem and vice versa. So when it matters most a coordinated approach will almost always be needed and twin peaks makes this more difficult.
Which brings me to consumer credit, a current focus of the FPC (see link) and of much other regulatory attention. Only this week, the FCA issued an update on its motor finance investigation, while a few weeks ago it announced its much-anticipated reforms to credit card regulation. Meanwhile there has been a flurry of major speeches, from Andrew Bailey to Jonathan Davidson.
At present, the FPC doesn't see credit as a particular risk but this could change quickly as interest rates rise. The continual challenge in a twin peaks structure will be for the PRA and FCA to remain in step on this. So far the messages are relatively well-aligned, but it's harder to be confident that the underlying work is equally as joined up given the regulators' different objectives and levels of resourcing.
The credit sector is now enormously important to the UK economy and to individual households - in other words, in a prudential and a conduct sense. The last decade's fall in real incomes combined with low interest rates has helped drive the renewed rise in household debt, while many millions (15% was the last estimate I heard) are effectively excluded from mainstream lending and so reliant on the sector.
But our twin peaks model makes it structurally hard to recognise this importance. As well as being increasingly important, the credit sector is extremely diverse, and both firms and their customers deserve a more nuanced and coherent approach than our twin peaks structure is equipped to provide.
Regulators will have recognised this and will be working to build the necessary bridges to enable proper collaboration, but it's likely to be a bumpy ride.
In the United Kingdom, aggregate private (non-financial sector) debt has increased only a little faster than GDP over the past couple of years and, relative to incomes, remains well below pre-crisis levels. Debt-servicing costs, for both households and companies, are low.