IIF Authors

Status: Will be live at 03/02/2023 15:30

IIF paper on Addressing Continuing Challenges around Market Fragmentation

The risk of fragmentation across financial markets has been recognized for several years. However, the problems created from excessive cross-border regulatory divergence - along with reversals in global integration and multilateralism - are continuing at pace. Financial institutions continue to experience a broader trend towards diverging home-host standards and approaches; local supervisory measures and ring-fencing extraterritoriality; and obstacles to cross-border cooperation and information sharing.

People, processes, technologies, data, budgets, and/or oversight are also often localized as result of fragmented regulatory decisions. This in turn creates significant financial and operational inefficiencies resulting in additional unnecessary costs to end-users and it can reduce the capacity of financial firms to serve both domestic and international consumers. The collective cost of this policy direction also weighs heavily on the real economy, impacting capital flows, trade, and inclusive access to financial intermediation.

As the focus by global policy makers on addressing these trends is more important than ever, the IIF has published a Staff Paper “How Fragmentation is Continuing to Challenge the Provision of Cross-Border Financial Services: Issues and Recommendations,” which outlines issues and recommendations to consider in order to avoid the negative economic consequences inherent in a fragmented global financial system. The IIF calls on regulators and policymakers to continue to reflect upon areas of international regulatory and supervisory cooperation and coordination. Taken together, our six recommendations are aimed to help address the continuing issues of fragmentation across markets and across the operational workings of cross-border financial services institutions.