Tuesday, June 14, 2011

What is the right approach to "regulatory arbitrage"

First, what is "regulatory arbitrage"? That is simply the tendency for companies to seek to move activities to locations where regulation is less stringent.

Since the start of the 2007 global crisis, one problem dogging improvied legislation and regulation anywhere is the suspicion, or threat, or regulatory arbitrage - in other words, if rules are too strict in say the USA, industries may move their activities to Latin America or Africa or Europe...

There are several ways around the problem of "regulatory arbitrage".

The most sensible system is of course to have global rules for global markets, so the question of regulatory arbitrage does not arise.

The next best is to build into the national regulations themselves the forbidding of regulatory arbitrage, keeping in mind that it is easier to talk of moving house than it is to actually move house.

The worst possible thing is to try, as Rep. Michael Grimm, R-N.Y., is apparently doing, to simply put off the implementation of the few and relatively weak new rules that have been put in place to govern at least part of the derivatives market which was so implicated in causing the crisi, and which is so implicated in the current yo-yoing of the global economy.

Putting off a cure does not help a disease. Sphere: Related Content

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