(Reuters) – Brexit, tougher privacy protection and a breakdown of foreign clearing houses risk fragmentation of markets, upset costs and undermine efforts to avert another financial crisis, global regulators said Tuesday.
International Securities Commission, which groups market regulators from the United States, Japan, China, the European Union and 30 other jurisdictions, said in a report that regulators were already cooperating more closely to avoid rules to interfere with cross-border trade.
"Still, some challenges and strengthened co-operation between regulators can further help address the risks to the financial system created by market fragmentation," IOSCO said in a report.
Reforms introduced by the 20 economies group (G20) discovery of the financial crisis a decade ago may inadvertently disrupt the markets, the report says and echoing a long
IOSCO looked at how willing countries should "postpone" each other after rules of trust among regulators were damaged by the financial crisis.
Legal EU Quoted Financial Stability Concerns of Wanting Close
It took the United States and the EU four years of politicized negotiation to accept a subset of their respective derivative rules.
"Building trust and self-confidence in peer regulators is a cornerstone of every effective cross-border regulatory framework for co-operation," said IOSCO in the G20 Ministers meeting in Japan later this week.
IOSCO said it will decide later this year, how to take their work forward, for example through formal "appraisal", but its powers are limited.
It does not stop recommending a binding mechanism to settle disputes over rules that would
World Federation of Exchanges urged G20 ministers avoid divergence of rules, stop "politically motivated dissonance" over regulation and introduce global standards for cryptographic assets.
] Brexit blues
The report said the regulators have raised concerns about the consequences of Brexit, which would see Europe's largest financial center leaving the EU.
The block rejected a proposal from The UK financial sector for "mutual recognition" or broad respect, says it wants to maintain the regulatory autonomy after Brexit.
It has introduced stricter requirements on clearing foreign derivatives, a step aimed at clearers in London after Brexit, but triggering concerns at the US Commodity Futures Trading Commission.
"The use of respect can be a powerful way to mitigate the risks of fragmentation on cross-border trading markets," said CFTC President C hristopher Giancarlo, who led the IOSCO's market fragmentation work.
Referring to other examples of potential fragmentation, IOSCO said that Japan only allows a local clearing house for interest rate swaps.
The overseas scope of EU rules on data confidentiality, stock exchange derivatives and securities research is also identified.
The impact of US trade derivative rules can also justify further investigation, the report said, adding that the lack of global rules on cryptographic assets was a potential source of future fragmentation.