With every great financial crisis comes new regulatory reform. The world is focusing on the regulatory shake-up US President Barack Obama has just tabled. But back in Hong Kong, we, too, are debating what to do with our own fragmented and inadequate regulatory regime. While our economy is nowhere near the size and complexity of America's, the free-market principles both economies share have led to similar problems. Markets can do many things right, but a hands-off approach from regulators can lead to trouble. It was not so much a deliberate light touch from local regulators, but rather myopia, which contributed to a series of financial scandals such as the minibonds fiasco last year. Loopholes and oversights have been exposed; it is time we close them and develop a regulatory system which functions better. Hong Kong has two official regulators, along with Hong Kong Exchanges and Clearing, which has oversight over listed companies. The Monetary Authority oversees banks and their stability; the Securities and Futures Commission (SFC) regulates brokerages and fund houses, and cracks down on malpractices such as insider-trading. This division of labour has created cracks through which complex structured products and derivatives, such as minibonds and Octave Notes have fallen. For example, minibonds were issued without the need for the commission's approval, and local banks sold them without being supervised by the SFC. Some headway has been made, such as forcing banks to separate staff who take deposits from those who sell investment products, to avoid cross-selling. In an interconnected world, banking, securities and insurance are all linked. What is needed is a single regulator who has the authority to supervise a whole spectrum of investment products. The government appears to acknowledge this when it hints that the commission will be tasked to enforce a single set of regulations to govern such products and the way they are sold. Whether that authority will ultimately rest with the commission or HKMA is less important than that a single regulator should have it. The next question is how much a regulator, given the new authority, should regulate. The commission and HKMA agreed that it should be led by criteria on adequate disclosure, but not investor suitability. This means a regulator must make sure investors are given enough information to have an adequate understanding of the products being sold. Certainly, it would be difficult for a regulator to approve investment products on the basis of their suitability to different types of investors. The commission is, however, preparing to consult market participants on classifying types of investment accounts to which structured products and derivatives may be sold in future. This is worth exploring on grounds of suitability. There should be broader markets and greater choices for investors. A regulator should not dictate the risk levels of a product or the suitable risk exposure of an investor. A product may be highly risky under certain market conditions but less so in others. What is unacceptable is that financial institutions advertise attractive features of their products while burying true risks in fine print, usually written in incomprehensible jargon. Efforts are, rightly, now being made to curb this. Just as electronic products now come with both technical and user-friendly manuals, future financial products should be legally required to do the same. It should be up to investors to decide on their risk tolerance; the job of a regulator is to make sure they have the information they need.