IOSCO published a report that examines instances of regulatory-driven fragmentation in wholesale securities and derivatives markets and considers what actions regulators can take to minimize its adverse effects. The report focuses on market fragmentation that arises as an unintended consequence of financial regulation. It provides examples of market fragmentation that IOSCO members consider to be significant and potentially harmful to the oversight and supervision of financial markets. Based on the analyses, the report proposes potential measures that IOSCO and relevant national authorities could explore to mitigate the risk and potential adverse effects of fragmentation on global securities markets.
The report further examines the progress made by IOSCO members in using deference and analyzes the regulatory mechanisms and tools associated with this concept (example, passporting, substituted compliance, recognition or equivalence). In doing so, the report follows up on a 2015 IOSCO report on cross-border regulation and seeks to identify the remaining challenges that can restrict cross-border activities. Regulators have become increasingly aware of the risks associated with unintended market fragmentation and are cooperating more to mitigate its effects through deference and its associated tools. Also, regulators have developed novel processes to work multilaterally to the benefit of the markets they oversee. Nevertheless, several challenges remain and strengthening cooperation between authorities could further assist in addressing adverse effects on the financial system stemming from market fragmentation.
The concerns of IOSCO about the risks of fragmentation are shared by other international organizations and policymakers. These entities include the G20, which has made market fragmentation a top priority, and FSB, which also published a paper on market fragmentation. The report proposes potential measures that IOSCO and relevant national authorities could explore to mitigate the risk and potential adverse effects of fragmentation on global securities markets. These measures include ways to foster further mutual understanding of one another’s legislative frameworks, deepen existing regulatory and supervisory cooperation, and consider whether there are any good or sound practices that can be identified regarding deference tools. The IOSCO Board will decide on its approach to these next steps in the second half of this year.
Keywords: International, Banking, Securities, Market Fragmentation, Cross-Border Regulation, Derivatives, IOSCO
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The Australian Prudential Regulation Authority (APRA) is seeking comments, until October 21, 2022, on the introduction of CPS 230, which is the new cross-industry prudential standard on operational risk management.
The European Commission published a Delegated Regulation 2022/1301 on the information to be provided in accordance with the simple, transparent, and standardized (STS) notification requirements for on-balance-sheet synthetic securitizations.
The Australian Prudential Regulation Authority (APRA) is announced revisions to the capital framework for authorized deposit-taking institutions to implement the "unquestionably strong" capital ratios and the Basel III reforms.
The European Banking Authority (EBA) published a report that examines the use of certain exemptions included in the large exposures regime under the Capital Requirements Regulation (CRR).
The Bank of England (BoE), the Prudential Regulation Authority (PRA), and the Financial Conduct Authority (FCA) published a joint discussion paper that sets out potential measures to oversee and strengthen the resilience of services provided by critical third parties to the financial sector in UK.
The Bank of England (BoE) issued a communication to firms to provide an update on the progress of the joint data transformation program—which is being led by BoE, the Financial Conduct Authority (FCA), and the industry—for the financial sector in UK.
The European Banking Authority (EBA) published the draft methodology, templates, and template guidance for the European Union-wide stress test in 2023.
The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) jointly published the final guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) for investment firms.