Fragmentation in global financial regulation poses risks to competition, economic growth, and the resilience of financial systems, according to a paper published by the Bank Policy Institute (BPI), GFMA, and the Institute of International Finance. The paper highlights that "fragmentation resulting from miscalibration of global standards or excessive regulatory and supervisory divergence can trap capital, liquidity and risk in local markets."
A 2018 OECD survey suggested that fragmented financial sector regulation costs the global economy approximately $780 billion annually. Additionally, the World Economic Forum estimates that such fragmentation could decrease global output by up to $5.7 trillion each year.
Efforts by organizations like the Financial Stability Board and others have been underway since 2018 to address market fragmentation. However, these efforts have not stopped fragmentation from increasing.
The paper offers four recommendations for addressing this issue:
1. Identify policies that force subsidiarization.
2. Reassess ring-fencing requirements.
3. Improve global coordination and cooperation.
4. Re-evaluate supervisory colleges and case management groups.
Contact details for further information include Tara Payne from BPI at tara.payne@bpi.com.
The Bank Policy Institute is a nonpartisan group representing various banks in the United States, providing research on regulatory issues. The GFMA advocates for policies supporting global capital markets through its member associations in Europe, Asia, and North America. The Institute of International Finance represents about 400 members globally and supports prudent risk management practices within the financial industry.