adoption of the principle of consolidated supervision has enabled supervisors to assess more
adequately the overall strength of a banking organisation and to monitor its susceptibility to
risks based on the totality of its business, wherever conducted.32 Moreover, bank collapses
such as BCCI revealed that consolidation into a single entity was important for purposes of
regulating a bank. Correspondingly, the functional overlaps between banking, insurance and
securities business and their universal scope make it more difficult for a regulator to observe
and comprehend such businesses.33 The difficulty of measuring and assessing risk within such
institutions along with the speed with which assets can be adjusted in derivatives markets has
led to more emphasis being placed on internal managerial control. 34 Consideration is also
being given to the structures that can be put in place to re inforce the incentives of all parties
involved - not just to management but all parties including auditors and regulators.35
Following the “Big Bang” in 1986, most of the leading stock exchange member firms were
bought by UK merchant or clearing banks, overseas commercial or investment banks. This
started the trend developing to the growth of financial conglomerates.36
Another contributory factor to conglomeration arises from the change in demographic
structure and increased income in the OECD countries as public pension systems face
pressure as a result of aging population.37 As a result, individuals with higher income have
resorted to investing in additional pension schemes and other investment means to ensure
security of their living standards after retirement.38 Insurance companies have responded to
these changes in the environment by placing more emphasis on those products with savings or
investment character and less emphasis on those products of an “income protection” character
such as annuities and pensions.39
Factors such as the growth of financial conglomerates and the derivatives markets fuelled by
the impact of information technology and increased competition have triggered a change in
the way supervision is carried out around the globe. In addition, bank collapses have also
contributed to a re-think in the structure of financial regulation, that is, the way in which
financial regulation is carried out. Developments in the 1980s considerably blurred earlier
distinctions between product and institutional structures and various financial services have
become closer substitutes for each other.40 As traditional lines of demarcation between
product and institutional structures became increasingly blurred, financial institutions also
became exposed to new forms of competition.41 As a result of this resulting scope for
competition, there was an awareness by financial intermediaries of the need to re-assess their
overall business strategies in order to cope with changing demands of their clients, as well as
seeking new profitable ventures.42 These events contributed to the growth of financial
Organisation for Economic Co-operation and Development, ‘Trends in Banking Structure and Regulation in
33
34
35
36
37
38
39
40
41
42
OECD Countries’ 1987 at p 14
CAE Goodhart, (ed) 'The Emerging Framework of Financial Regulation ( Central Banking Publications
Ltd London 1998) 95-96
ibid
ibid
See DH Scott ' The Regulation and Supervision of Domestic Financial Conglomerates' August 1994 The
World Bank Financial Sector Development Department Policy Research Working Paper No 1329
T Filipova Concept of Integrated Financial Supervision and Regulation of Financial Conglomerates :
The Case of Germany and the UK (Nomos 2007) 38
ibid
ibid
K Koguchi, 'Financial Conglomeration', Financial Conglomerates [1993] OECD 7
ibid
ibid