On 4 June 2019, the International Organization of Securities Commissions (IOSCO) published a report on market fragmentation and cross-border regulation.

In 2015, IOSCO released a Final Report from its Task Force on Cross Border Regulation (2015 Report), which included a toolkit of three broad types of approaches for cross-border regulation: national treatment; recognition; and passporting. The new report follows up from the 2015 Report, focusing primarily on developing deference. IOSCO describes ‘deference’ as the reliance that authorities place on one another when carrying out cross border regulation or supervision of participants.

Key points to note in the new report include:

  • the use of deference and the tools associated with this concept (e.g., passporting, substituted compliance, recognition / equivalence) can effectively contribute to mitigating the risk of fragmentation for global cross-border markets;
  • many regulators have become acutely aware of the risks associated with unintended market fragmentation and there has been increased collaboration and cooperation between and among IOSCO members to mitigate its effects;
  • deference between regulators through the use of cross-border regulatory tools, particularly those identified in the 2015 Report, has increased significantly. Bilateral arrangements in the form of memoranda of understanding are now a common tool used by regulators;
  • some of the G20 Leaders’ reforms are still in the process of being implemented and new areas of financial services are emerging. This could lead to new market fragmentation in the future;
  • mutual understanding could be built through the use of the IOSCO Regional Committees where members can discuss cross-border regulatory issues on a regular basis; and
  • IOSCO could explore further work to encourage supervisory cooperation and survey respondents suggested this as an area where further focus is needed.