Historically, when a legal entity--a unit of an organization--was the only vehicle for participating in a certain function, the idea of separating regulators by functions was consistent with legal form. It is increasingly less so when a synthetic asset can be created with the same risk and return characteristics of the underlying asset.
Or, how comfortable should the individual regulator feel if a hedge involves as counterparties two legal entities in the same failing organization? Will the regulator of unit A let the gains booked in his unit offset losses in unit B, regulated by another entity? Can he do so under the law?