So the latest instalment of the Richard Li Tzar-kai soap opera appears to have drawn to a close. Our protagonist - you can choose for your self whether he is hero or villain - has been frustrated in his third attempt either to sell or take private fixed-line phone operator PCCW. This time, he was foiled by Court of Appeal judge Mr Justice Anthony Rogers and his two colleagues. On Wednesday, they overturned a High Court ruling allowing the deal to go through. Instead, they ruled in favour of the Securities and Futures Commission, which argued that February's shareholder vote in favour of the buyout had been illegally rigged. No doubt the serial will be resumed at some point in the future, but don't hold your breath; Mr Li is forbidden from reviving his bid for at least another 12 months. In the meantime, another greater drama continues to play out in the background. Although it shares a few characters and scenes with Mr Li's soap opera, it is far less entertaining. But its scope is much wider, and its outcome will be far more important. Its subject is the health of financial regulation in Hong Kong. Like a string of other recent episodes - the Lehman Brothers minibond scandal, Citic Pacific's failure to promptly disclose massive currency trading losses, the furore over directors' share dealings ahead of company results announcements - the PCCW vote-rigging affair has exposed failings in the structure of our regulations and the institutions that enforce them. In the case of PCCW, the problem was with the rules governing the takeover mechanism chosen by Mr Li, a so-called 'scheme of arrangement'. A quirk in the Companies Ordinance known as the headcount rule allows such schemes to be blocked by a small number of shareholders who have registered their shares in their own names, against the wishes of the vast majority, whose shares are held in electronic form and registered as belonging to the centralised Hong Kong Securities Clearing. It was precisely to try to ensure that the buyout would succeed in the face of opposition from a small number of registered shareholders that the PCCW vote was rigged. The attempt was disgraceful, but it was the Companies Ordinance that was at fault in the first place. The rules should be changed to protect the interests of all minority shareholders equally, whether they have registered their shares in their own names or not. Other Hong Kong regulations have recently been found wanting, too. However, in the cases of the blackout period on directors' share dealings, the Citic disclosure scandal and the mis-selling of minibonds there is a strong argument that the real problem is not so much the rules themselves. Rather, it is the outdated division of labour among Hong Kong's different regulators which has left serious cracks in our overall regulatory structure. The main shortcoming is that areas of responsibility are divided between different bodies according to who they regulate, not what they regulate for. As a result, the Hong Kong Monetary Authority is responsible for banking supervision. The SFC oversees brokerages and Hong Kong Exchanges and Clearing is charged with regulating listed companies. Meanwhile, the Office of the Commissioner for Insurance, a government department, looks after insurers. The result is a right old mess. Just consider the Lehman minibond case. Minibonds were clearly investment products, and the Securities and Futures Ordinance clearly states that the regulation of investment products sold to the public is the job of the SFC. But the minibonds were sold - in many cases as the equivalent of deposits - by banks, and the 2002 memorandum of understanding which divides the duties of the HKMA and the SFC declares that it is the HKMA which is the frontline regulator for banks, responsible for their day-to-day supervision. This sort of ambiguity creates cracks in the regulatory structure and leads to the sort of unseemly finger-pointing we have witnessed lately, with one body blaming the other for the resulting regulatory failings. Instead of carving up responsibilities by the type of institution to be regulated, it would make far more sense to divide the job according to the purpose of regulation. Broadly, regulation has two objectives. Firstly, regulators must safeguard the overall safety and stability of the financial system. Secondly, they must oversee individual financiers' good conduct in order to protect investor interests. At the moment, the HKMA is responsible for banking stability while the SFC is charged with managing systemic risk in the securities and futures industry. This division is artificial and ludicrous. One institution should be responsible for overseeing all systemic risks, and the HKMA, as lender of last resort, is the obvious candidate. Equally, a single body should be responsible for enforcing good conduct and protecting investor interests, whether in banking, insurance, broking, or at listed companies. Instead we have a diffuse and ambiguous model, which, if the government goes ahead with plans to create an Insurance Authority, is only going to get more complicated and confusing. The government must grasp the nettle now. Either, it must create a single unified financial regulator under the HKMA, which could be unwieldy. Or it should fold all the current regulators into two, with the HKMA responsible for managing all systemic risks and the SFC charged with protecting investor interests across the board by enforcing good conduct at banks, brokers, insurers and listed companies. That way, maybe we'll be able to enjoy the soap opera without having to sit through more regulatory tragedies.