Tuesday 25 June 2019

Market fragmentation risks driving up global costs, regulators warn

Traders react to market events on the floor of the New York Stock Exchange
Traders react to market events on the floor of the New York Stock Exchange

Huw Jones

Brexit, tougher data privacy rules and a crackdown on foreign clearing houses risk fragmenting markets, bumping up costs and undermining efforts to avert another financial crisis, global regulators said yesterday.

The International Organization of Securities Commissions (IOSCO) said in a report that regulators were now working together more closely to avoid rules from disrupting cross-border trade.

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IOSCO represents market regulators from the United States, Japan, China, the European Union and 30 other jurisdictions.

"Challenges remain and strengthening cooperation between regulatory authorities could further assist in addressing risks to the financial system stemming from market fragmentation," it added.

Reforms introduced by the Group of 20 Economies (G20) to plug regulatory gaps uncovered by the financial crisis a decade ago may be unintentionally disrupting markets, the report said, echoing a long-standing view of global banks.

IOSCO looked at how willing countries are to "defer" to each other on rules after trust among regulators was damaged by the financial crisis.

Jurisdictions like the EU cited financial stability concerns for wanting close oversight of foreign financial firms that operate on their turf, sometimes leading to tension.

It took the United States and the EU four years of politicised negotiation to accept a subset of their respective derivatives rules.

"Building trust and confidence in peer regulators is a cornerstone of any effective cross-border regulatory cooperation approach," IOSCO said in the report for G20 ministers who are meeting in Japan later this week.

IOSCO said it will decide later this year how to take its work forward, such as through formal "deference assessments", but its powers are limited.


Irish Independent

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