Twin Peaks in Brazil: what can we learn from international experience?

Abstract

The Ministry of Finance intends to reform the institutional structure of financial supervision in Brazil. The
proposal would replace the current fragmented approach – in which separate authorities monitor compliance
in the banking, capital markets, insurance and supplementary pension sectors – with an objectives-based
supervision strategy, known as Twin Peaks. To assess the merits of such a proposal, this article reviews literature
and legal documents to: (i) identify reasons for trends, observed in other jurisdictions, of moving from fragmented
to integrated supervision and, subsequently, from unified supervision, one form of integrated supervision, to
Twin Peaks; (ii) identify issues considered by foreign authorities when preparing for changes in supervision
models; (iii) describe the domestic financial architecture, established in the 1960s and 70s, and analyse how the
Brazilian financial system has evolved since then; (iv) identify sensitive issues to be considered before undertaking
the proposed reform. The conclusion is that whilst the debate about reforming the institutional structure of
supervision is justified, certain fundamental issues should be addressed. These include the lack of resources
available to the Securities and Exchange Commission, the insufficiency of investor protection mechanisms in the
capital markets, whether to include occupational pension schemes under the Twin Peaks model and the need for
greater attention to conduct supervision in the banking field stand out.