Ashley Alder: Regulatory fragmentation still a major concern

Author: Karry Lai | Published: 11 Oct 2019
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Read IFLR Practice Insight's latest special report on regulatory fragmentation here

From data localisation rules to bank capital regulation, fragmentation in global regulation is causing firms to withdraw from markets, but progress is being made gradually, according to speakers at Asia Securities Industry & Financial Markets Association’s (Asifma) annual conference in Japan.

In his keynote address Ashley Alder, Iosco chair and CEO at Securities and Futures Commission (SFC), said that fragmentation has increased compliance costs for firms significantly. Incremental harmonisation has not been a major global priority, and jurisdictions are a long way off from a global rulebook.

Alder said there are two main factors why firms are withdrawing from certain markets. One factor is conflicting regulation. "It’s impossible for cross-border activity to be carried out," said Alder. "The derivatives market is at the heart of the fragmentation, and the costs and risks of compliance mean that firms are withdrawing from the market."

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He said that fragmentation in regulation can be seen everywhere, including data localisation rules, interbank offered rate (IBOR) transition and benchmarks regulation.

In the area of stable coins, he sees the importance of regulators tackling the issue to prevent regulatory arbitrage. Another area that is building momentum is sustainable finance. He pointed out that there remains a polarity of opinions on whether the EU’s sustainability taxonomy should be followed or whether climate change is still too long-range for investors.

While deference has been widely seen as the silver bullet to fragmentation, Alder warned that there hasn’t been multilateral consensus to guide equivalence decisions. "It’s practically difficult to move from a bilateral to multilateral level, especially against the backdrop of Brexit," said Alder.

Jun Mizuguchi, co-chair of the Iosco follow-up group to the taskforce on cross-border regulation, and senior deputy commissioner for international affairs at the Financial Services Agency of Japan, emphasised the importance of making the deference process clearer and more efficient. He pointed out that differences in language and varying interpretations of the same laws remain major barriers. Another challenge is how best to keep updated on changing regulations.

Although fragmentation is a beast that is hard to tackle, progress is being made through the collective efforts of global regulators, central banks and industry associations. According to Toshio Tsuiki, deputy secretary-general of the Basel Committee, to help with the implementation of Basel standards, the regulatory consistency assistance programme was created to increase transparency and encourage implementation by "grading" jurisdictions based on their level of compliance. The focus will be shifting to Basel III implementation in the coming few years.

Boon Ngiap Lee, assistant managing director of capital markets at the Monetary Authority of Singapore, stressed the importance of an open mind and maintaining close dialogue with other regulators. "It’s about being aware of the practical reality of the market while coming up with the best solution to make markets safer and more efficient, by building trust and collaboration," said Lee.

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