Turkey: Twin Peaks Approach To Financial Regulation

Last Updated: 24 September 2019
Article by Mertalp Yıldırım

Jurisdictions such as the United Kingdom, the Netherlands, South Africa and Australia have substantially reformed their banking and financial sector regulators by adopting a "twin peaks" regulatory structure.

The global financial crisis did not affect Netherlands and Australia as much as it did the United States and the United Kingdom. This does not have to do with only the regulatory structure but also the two markets that have invested in the securitization assets the most were the US and the UK. But still the regulations in the respective markets must be examined.

The Netherlands adopted a Twin Peaks Approach to financial services regulation. Unlike Australia, in the Netherlands, the central bank (DNB) also serves as the prudential and systemic risk supervisor of all financial services, including banking, insurance, pension funds, and securities. The Netherlands Authority for the Financial Markets (AFM) is responsible for all conduct-of-business supervision. Its overall objective is to promote transparent markets and processes and to protect the consumer. The work of the agency is guided by three further objectives: to promote access to the market; to ensure the efficient, fair, and orderly operation of the market; and to guarantee confidence in the market. Both the DNB and the AFM have enforcement authority. Until the late 1990s, the Netherlands employed the Institutional Approach to financial supervision. Regulators were divided along the traditional lines of banking, insurance, and securities. This model was abandoned in favour of a Twin Peaks Approach due to the consolidation of the Netherlands financial sector into one dominated by companies conducting business across multiple product lines, and the development of complex financial products that have cross-sector elements.1

The critics there argued that such an increase in regulation would increase compliance costs and the need for additional staff to could, in turn, reduce the availability of resources for innovation, and for customers mean a reduction in credit

Doctor Taylor said. "Twin Peaks is not something that should be adopted just because it is the current fashion to do so. You need to analyse the type of industry you are aiming' to regulate."

Has the switch to twin peaks regulatory structure been good for the UK? Is it worth it? Can it help prevent another financial crisis?

Whenever a regulatory failing occurs, the lawmakers tend to make the mistake in believing that if the system is changed and made more complex, the same regulators who failed in the previous system somehow wouldn't fail in the new amended system. However, this belief is far from being accurate.

Since 1986 all the has happened is new complex expensive regulatory systems have been created under the mistaken belief, or in any event, parliament has been persuaded to believe, that once created these regulators will somehow know what to do. Experience has shown that this belief or confidence is greatly misplaced. The newly created regulatory systems have never even come to close the identifying the underlying causes of the financial failures. Thus, the Bearings Bank failure led to the FSA which morphed itself into a Market Conduct regulator never solving the very problem it was created to solve, bank failures. The 2008 world financial crisis demonstrated clearly the FSA was a failure which has now led to the Twin Peaks Regulatory System. Once again there is no indication at all what in fact it will do to prevent another banking crisis. As before it is created with the forlorn belief the regulators will know what to do. They do not, and they will not. They never have.2

"Prudential and conduct of business ... regulation require[s] fundamentally different approaches and cultures and there may be doubt about whether a single regulator would, in practice, be able to effectively encompass these to the necessary degree."3

The twin peaks model does has multiple advantages. First of all, two headed regulation system is deemed to have more dedication towards achieving their respective objectives and specific rules that the rulers are bound with.4 The second advantage is that it is less likely for the regulatory system to surpass the general regulatory domination overall..5 The regulatory culture which is composed of the manners, activities and policies that the regulators apply to achieve their purposes can be amended according to the cultural features and regulator's functions in order for the system to function effectively..6 This flexibility prevents the concern of containing several different cultures under a single roof which can occur in situations where there is one regulator at the top and different cultures come to existence from diversified regulatory purposes.7 Another benefit is that the twin peaks model can better comply with the constant changes and emerging complexities on the financial markets and continuous boom of the financial conglomerates. The final advantage to be mentioned can be the ability of the twin peaks model to prevent the complications arising from a system with a super-regulator. This advantage is also strengthened with the draft Financial Services Bill prepared by the UK Joint Committee (JCFSB) which states that:

`[T]he evidences of the recent financial crisis suggest that mixing functions can contribute to a lack of focus on rising macro‐prudential risk and difficulties in moving to a 'war footing' when that risk becomes substantial. In addition, the incentives are different. For example, consumer protection can be well served by keeping a bank open, while stability is well served by closing it. `8

There are also several perceived disadvantages of the twin peaks model.9 First, twin peaks may create a regulatory overlap with dual‐regulated entities. The twin peaks model means that it is 'inevitable that two separate regulators would have two separate rule books and two separate systems.'10 This could place a 'considerable burden'11 on regulated entities and lead to poor information‐sharing and coordination.

Secondly, there is a general risk that cooperation and coordination between the regulators will not be enough12with potentially serious consequences.13While these risks can be managed through robust coordination and liaison channels, it nevertheless remains a key concern for jurisdictions that have adopted the model.14 15

Added to the international failure of the model which occurred in the Netherlands, are the failures of Twin Peaks in Australia. These include the collapse in 2001 of a large and significant insurer – HIH – under APRA's watch, and the near failure of Zurich Insurance Australia in 2000. Then there is the dismal performance of ASIC in the financial advice scandals that have rocked Australia continuously since 2014 – a performance excoriated by Australia's Senate.16

"New structures do not guarantee better regulation...Any country that thinks that tinkering with the structure of agencies will, by itself, fix past shortcomings is doomed to relive its past crises" (Carmichael, 2003)


1. G30 structure financial supervision 2008

2. http://www.freemarketfoundation.com/article-view/case-against-introducing-the-twin-peaks-regulatory-system

3. See D Llewellyn, "Institutional Structure of Financial Regulation and Supervision: The Basic Rules", Paper presented at a World Bank seminar Aligning Supervisory Structures with Country Needs, Washington DC, 6 and 7 June 2006, 26 (2006).

4. ibid 27‐8.

5. ibid 27‐8.

6. ibid 27‐8.

7. Hengel, Hilbers and Schoenmaker 'Experiences with the Dutch Twin Peaks Model: Lessons for Europe' in Kellermann, Haan & Vries (eds), Financial Supervision in the 21st Century (Springer 2013) 186‐7.

8. Joint Committee on the draft Financial Services Bill (JCFSB), Draft Financial Services Bill – Report, together with formal minutes and appendices (HL 2010‐12, 236, HC 2010‐12, 1447) 73 [83].

9. Andrew Godwin (2017) Introduction to special issue – the twin peaks model of financial regulation and reform in South Africa, Law and Financial Markets Review, 11:4, 151-153, DOI: 10.1080/17521440.2017.1447777

10. ibid para 286.

11. JCFSB, above n 15, para 285.

12. This was considered in the New Zealand context: The New Zealand Institute of Chartered Accountants, Submission to the Commerce Select Committee, Financial Markets (Regulators and Kiwisaver) Bill, November 2010, para 32.

13. This was a serious concern in the HIH Report, as discussed in Part IV below: see generally Commonwealth, The HIH Royal Commission, The failure of HIH insurance: A corporate collapse and its lessons (April 2003).

14. New Zealand Treasury, 'Financial Sector Regulatory Agencies – Regulatory Impact Statement' (14 September2010). Available at (http://www.treasury.govt.nz/publications/information/releases/ris/pdfs/ris‐med‐fsra‐sep10.pdf/view)

15. Is Australia's 'Twin Peaks' System of Financial Regulation a Model for China? Andrew Godwin, * Guo Li** and Ian Ramsay***

16. Doing it the Australian Way, 'Twin Peaks' and the Pitfalls in Between By Andy Schmulow

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions