Importantly, this inter-agency proposal will apply across all types of US financial institutions, limiting the opportunity for regulatory arbitrage
. Similarly, it will better align US compensation standards with those which have been adopted internationally under the framework approved by the Financial Stability Board in 2009.
India's apex bank observed that internationally, the tightening of the regulatory regime for the banking sector has raised the possibility of increased regulatory arbitrage
vis-a-vis the non-banking financial sectors.
Though the RBI norms are applicable only to scheduled banks, HFCs and NBFCs are usually not allowed to benefit from regulatory arbitrage
"We are committed to take action at the national and international level to raise standards, so that our national authorities implement global standards consistently, in a way that ensures a level playing field and avoids fragmentation of markets, protectionism and regulatory arbitrage
," they said in a statement.
This sort of regulatory arbitrage
could defeat the purpose of the new compensation rules.
"We think Basel III delay will also mean the odds of unlevel playing field between US, Swiss, UK, Eurozone is even higher, which will provide regulatory arbitrage
opportunities and disadvantages for some."
Another political risk is increased financial regulation in America and Europe, where the lack of transatlantic coordination is creating the specter of a spaghetti bowl of conflicting rules that lead to opportunities for destabilising regulatory arbitrage
Such a plan could include goals for future harmonization efforts, such as time frames for implementing the recommendations; assessment of whether remaining differences in statutes and regulations result in inconsistent regulation of similar products and entities that could lead to opportunities for regulatory arbitrage
; and periodic reports to Congress on their progress, including the implementation and impact of the recommendations.
Similarly, some of the G-20 initiatives--such as extending regulation to all systemically significant parts of the industry or restricting the use of offshore centers to escape regulation--will reduce the ability of the industry to pressure regulators by engaging in regulatory arbitrage
. But greater reform of the regulatory process is needed to ensure that these new rules are implemented and updated effectively as time goes on.
The panelists considered the problems of systemic risk, the challenges associated with effective regulation financial markets, and the problems associated with regulatory arbitrage
Others have referred to a "regulatory arbitrage
", meaning different rules would drive trade from one exchange to another to the Ice's benefit.
Others agreed that this provision would enhance transparency in the market and minimise the risk of regulatory arbitrage
; they were also reassured that HM Treasury intend to review the proposed rules in two years' time to ensure the regime is functioning as intended.<p>HM Treasury said it believes the mandatory listing provision is necessary to limit the risk that the legislative changes could lead to regulatory arbitrage