Navigating Global Financial System Fragmentation 2025

Leverage established financial governance structures to reduce the growing costs of a fragmented financial system The G20 can help ensure that major financial powers prioritize compliance with international standards by supporting the CPMI, FSB, BCBS and IOSCO and others. Upholding international standards improves harmonization across the financial system. Action items include: –Developing interoperability frameworks: Policy-makers and regulators can offset the efficiency losses caused by the emergence of parallel financial market infrastructures by building on existing efforts, such as the G20 Roadmap for Enhancing Cross-Border Payments.76 As new networks proliferate, stakeholders can mitigate the negative effects of fragmentation by ensuring that interoperability frameworks connect new systems with each other and existing infrastructures, alike. –Encouraging mutual recognition of comparable standards and interoperability of regulatory regimes: To enable the private sector to enter or remain in certain jurisdictions that face higher compliance costs due to extraterritorial regulation, policy-makers should promote interoperability and, where possible, “encourage greater comparability of regulatory regimes through mutual recognition and equivalence rather than line-by-line comparability”.77 Such measures ease access and reduce compliance costs for the private sector.78 –Standardizing the regulation of cross-border capital, services, goods and data flows and strengthening adherence to international standards to shield supply chains, foreign exchange markets and other sectors from the disruptive impacts of fragmentation. Use regular stress-testing to highlight the negative externalities of financial fragmentation The existing stress-testing infrastructures of financial governance institutions, such as the IMF’s Global Bank Stress Test and a similar exercise led by the FSB and BCBS, could provide a platform to better quantify the risks of geoeconomic-driven financial fragmentation on a recurring basis.79 Such a mechanism would promote transparent data sharing and enable decision-makers to gauge the potential costs of economic statecraft measures. Establishing greater transparency regarding the likely risks of an escalation is the best tool to defuse geopolitical tensions. leverage their collective reach and convening powers to facilitate a similar articulation of shared principles to protect the integrity of the global financial system. By drawing on this report’s foundational Principles to Safeguard the Global Financial System from Fragmentation, informed and articulated by private-sector leaders from across global financial services, the UN and G20 could work with the World Economic Forum and its partners to build a framework that guides future economic statecraft in ways that facilitate ongoing financial system integration, even in the face of geopolitical tensions. Adopt existing best-practice definitions to define guardrails, including the rule of law Policy-makers should use synergies with existing agreements, such as the G20 High- Level Principles on Preventing and Combating Corruption in Emergencies, to kick-start the design of appropriate guardrails.74 This set of G20 principles could encourage governments to uphold their domestic legal systems and enforce global financial regulations. Other indispensable elements of the financial system that must be protected include the independent operation of international institutions and standard-setting bodies. Establish a best-practice toolkit for economic statecraft To operationalize high-level principles or norms, policy-makers should work with the private sector to establish a best-practice toolkit for implementing economic statecraft measures. Given the FATF’s global reach as a standard- setter to combat money laundering and terrorist financing, the institution could be tasked with developing and propagating rules for responsible economic statecraft in close cooperation with countries’ financial intelligence units (FIUs). The Rules of Engagement for Responsible Economic Statecraft outlined in this report identify how governments can optimize their policy processes to craft more targeted and better-aligned economic statecraft measures that minimize unintended consequences. Two additional mechanisms include developing public–private consultation systems and establishing standard protocols for implementing and enforcing economic statecraft measures. The foundational principles proposed in this report could guide future economic statecraft frameworks that support ongoing financial system integration, even amid geopolitical tensions. Business mitigation strategies: Engage additional experts Bringing in specialists in geopolitical risk strengthens financial institutions’ ability to anticipate and manage complex global challenges.75 Navigating Global Financial System Fragmentation 34