Supervision by function can ensure that competitors have a similar regulatory environment. But functional supervision has a weakness common to entity supervision. That is, business processes are often designed without regard to management organization or legal entity. This is becoming more common as technology is used to integrate varied activities and internal control systems are used to aggregate information across business lines.
Thus, a supervisor that focuses on one part of the business process may not understand how activities earlier or later in the process flow may affect internal controls and risk exposures. Further, as we have seen in some notable public enforcement actions taken in the last couple of years, supervision of only a portion of the organization can leave gaps in risk coverage.