The lack of specific alternative funding channels or sources can hinder investment particularly in higher-risk projects -startups, intangibles and innovation- which depend on venture capital or other specialised sources of market-based financing in their early stages. Small and medium-sized enterprises generally also encounter problems in tapping capital, owing to reduced access to market finance. There are several obstacles contributing to fragmentation. First, an investor seeking to diversify its portfolio by having exposures to companies in different countries must deal with legal barriers. The most telling example is the lack of harmonisation of insolvency regimes, which vary widely across jurisdictions for financial and non-financial corporations, as a result of different cultural traditions and legal frameworks. Second, this investor might face different regulations, as the process of strengthening the pan-European regulators is still incomplete. This is a more pressing question as markets become more integrated and technologically complex. Brexit entails a significant risk of further fragmentation, as some companies and transactions may relocate to several different financial centres, while others may remain in the UK. 11  Third, there are also inconsistencies in capital taxation. This is not only a problem of tax rates: tax bases are also different across countries, and there is enormous diversity and complexity in terms of legal requirements and forms, as in the case of withholding taxes. In addition, the so-called debt bias due to the favourable tax treatment of debt relative to equity distorts incentives in favour of the former.

William C Dudley: Reforming the OTC derivatives market Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Harvard Law School’s Symposium on Building the Financial System of the 21st Century, Armonk, New York, 19 March 2012. *  *  *  It is a great pleasure to have the opportunity to speak here. Today I will focus on two related aspects of the regulatory reform agenda that are complex and global in nature. First, I will discuss the efforts underway to reform the over-the-counter (OTC) derivatives markets. This includes creating strong incentives to standardize trades and clear those trades through central counterparties (CCPs) and improving disclosure and transparency through mandatory reporting of all OTC derivative trades to trade repositories. Second, I will discuss the global program to establish tougher standards for the regulation and oversight of financial market infrastructures (FMI) – focusing particularly on CCPs for over-the-counter derivatives. Over the past two years, two important standard setting bodies – the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) have been developing a new package of standards called, Principles for Financial Market Infrastructures. The aim is to strengthen the resiliency and robustness of FMIs that are systemically important and are the backbone of the global financial system. I anticipate that the approval process will be completed and the finalized Principles document will be issued and broadly distributed sometime next month.