In a new report, the Financial Stability Board ("FSB") considered "financial activities where supervisory practices and regulatory policies may give rise to market fragmentation." The FSB highlighted:
- national regulatory actions concerning the trading and clearing of OTC derivatives, in which regulators did not consistently adopt G20 international standards;
- banks' cross-border management of capital and liquidity, in which regulators did not consistently adopt G20 international standards and implemented duplicative regulations; and
- barriers to sharing information across borders, including (i) differences in trade reporting requirements, (ii) legal barriers to full data reporting or sharing, and (iii) differences in reporting requirements concerning cyber risk and stress testing.
While the FSB did not attempt to assess the significance of fragmentation or consider the effects on financial stability or the efficiency of markets, the FSB offered the following suggestions to regulators considering ways to mitigate the risk:
- consider the possible market-fragmenting effects of regulations more systematically;
- clarify specific technical aspects of standards;
- monitor market fragmentation;
- discuss market fragmentation issues and policies that are likely to affect fragmentation;
- align and improve data collection;
- adopt cross-border agreements to support supervisory cooperation; and
- increase cross-border regulatory deference and recognition.
The FSB intends to reassess this topic in November 2019.
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