FSB published an update on its work to address the issue of market fragmentation. The update covers steps that have been already taken and planned to address this issue by FSB, in collaboration with the standard-setting bodies, since the June 2019 Osaka G20 Summit. The update is focused on areas such as deference between regulators; pre-positioning of capital and liquidity; regulatory and supervisory coordination and information-sharing; and market fragmentation as part of the evaluation of reforms, starting with the ongoing “too-big-to-fail” (TBTF) evaluation of FSB. Among the approaches that FSB is considering to avoid future fragmentation is the possibility to promote greater use of common elements in the reporting of supervisory data.
The following the key highlights of the update, which was delivered to the G20 Finance Ministers and Central Bank Governors ahead of their meeting in Washington D.C. in mid-October:
- Deference. IOSCO proposed several practical steps that could strengthen cooperation between regulatory authorities and further assist regulators in addressing the adverse effects of market fragmentation. To bring in considerations relevant to the FSB mandate, these bodies would cooperate with FSB. IOSCO is also developing a repository for deference assessments, which will include, once completed, the deference assessments that have been conducted by member jurisdictions as well as their final outcome.
- Pre-positioning of capital and liquidity. FSB has taken forward work on this issue through a review of the technical implementation of its total loss-absorbing capacity (TLAC) standard (completed in July 2019) and through a workshop on pre-positioning and ring fencing with external stakeholders. The review concluded that implementation of this standard is still ongoing and, therefore, continued efforts may be needed to avoid potential risks of unnecessary fragmentation of capital resources. To this end, FSB had held a workshop on September 26, 2019 in Philadelphia to engage with industry representatives, academics, and other stakeholders to explore the impact of these requirements on the funding practices, capital structure, and organization of large, internationally active financial institutions and the way they conduct their business.
- Regulatory and supervisory coordination and information-sharing. FSB will reinforce its role as a forum for the forward-looking discussion of regulatory and supervisory initiatives with cross-border relevance. FSB is also exploring the establishment of a repository that provides information on regulatory initiatives that could have a cross-border relevance; it will discuss the detailed arrangements for such a repository in early 2020. In addition, FSB is considering other approaches to avoid future fragmentation, including the possibility to promote greater use of common elements in the reporting of supervisory data.
- TBTF evaluation. FSB will examine the broader effects of TBTF reforms (positive or negative) on the financial system, including market fragmentation. The evaluation will explore whether and how resolution reforms (including TLAC) affect G-SIBs’ cross-border presence and management of capital resources for home and host jurisdictions and what the implications may be for financial stability. So far, FSB has conducted stakeholder outreach through workshops to exchange views with relevant stakeholders on this topic and through a call for public feedback. A draft evaluation report will be issued for public consultation in June 2020. The final report will be published in late 2020.
Keywords: International, Banking, Securities, Market Fragmentation, G20, Too Big to Fail, Reporting, IOSCO, FSB
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