What is a regulatory arbitration?

Regulatory arbitration is a process by which investors or institutions, such as banks, try to benefit from inconsistent financial regulations. These discrepancies can be caused by how different financial companies are regulated or because of contrasting laws in several countries. The idea of ​​regulatory arbitration is to maintain the basic essence of the trade agreement intact and at the same time avoid any regulatory obstacles that could otherwise alleviate profits. It is a controversial practice and has been associated with far -reaching economic problems in countries around the world.

Although global financial collapse at the beginning of the 21st century led to increased requirements for transparency among large financial institutions, the reality is that there are still opportunities for these large regulatory firms. Experienced employees in such large companies have the ability to make certain financial transactions as if they were completely obscure binding regulations when they actually move the boundaries of the law or arehave crossed the ends. The practice of regulatory arbitration is extremely profitable, although it sometimes mentions a larger economic image in a serious threat.

One way to achieve regulatory arbitration is, through regulatory discrepancies in how certain financial institutions are perceived. For example, banks must have enough assets to cover the risks associated with the investments they carry. On the other hand, institutional investors, insurance companies and other main financial forces do not have exactly the same limitations. The bank could transfer the risk to one of these institutions to meet its requirements, but there is still a risk.

International efforts to install financial regulations that are binding on all countries of the world have not been fully involved. What is that a set of regulations that binds an investment company in one country may not exist in another. To take advantage of it, a large societyNatures tend to carry out transactions where laws allow them to prosper, which is another form of regulatory arbitration.

Since there may be regulatory arbitration in many forms, it is difficult to prevent and prevent it. In some cases, as in the swaps of the loan that helped bankrupt huge financial institutions in the first decade of the 21st century, these practices were extremely harmful. In general, the fall of the main financial institutions runs down and damages the economic situations of citizens to whom these institutions serve. For this reason, such arbitration must be monitored as many legislators as possible to prevent such catastrophic financial events.