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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
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
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
Reg fragmentation provokes exit from
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
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
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.
The 'artificial barriers’ of regulation increase