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Analysing the relationship between regulation and market fragmentation requires a lot of subtlety. Regulatory heterogeneity is not always the cause - and certainly not the main cause - of fragmentation; and, it is often the consequence of a lack of market integration stemming from other factors.
Nevertheless, regulation could contribute to a higher degree of market integration if existing discrepancies were confined to what is really warranted by the need to accommodate domestic specificities in order to accomplish policy objectives.
Moreover, while international standards play a crucial role in limiting unwarranted fragmentation, there is scope for further strengthening their contribution to market integration by ensuring complete, timely and consistent implementation.
All told, the ambition of ensuring a level playing field for internationally active entities may need to look beyond adequate implementation of existing standards, namely at additional policy work aimed at providing international guidance on high-level issues currently covered by widely disparate approaches.
Such additional policy work will acquire even greater significance against the backdrop of rapid technological developments with the potential to disrupt the financial industry. In particular, new common standards may be required in the forthcoming feature to ensure a coordinated adjustment of the regulatory perimeter to: