Regulatory Arbitrage.

Not a new phenomenon but certainly one that appears to be growing, if the reports are to be believed..

With information sharing between regulators seemingly quite distant, with some implementing their own version of essentially the same rules, creating a level playing field seems to be quite the challenge.

The FCA was recently quoted urging the regulatory community to ‘implement fully the internationally agreed policies’. It is clear that banks will not escape responsibility, but with a dearth of new, sometimes competing rules, will they be to ‘blame’?

So how to address?

Well it seems that one way to address is huge new acquisition of headcount, with certain large banks reportedly hiring thousands of new employees into internal compliance roles, and indeed, an estimate being reported that there will be some 70,000+ new hires in ‘internal affairs’ roles across European Financial Institutions – clearly the risk and control areas are the place to be!

But is this sustainable with return on equity still presenting a challenge, and the need to scale the approach to regulatory compliance?

And furthermore, a reducing resource pool of knowledgeable candidates that exist in the market place, with poaching between competitors the ‘norm’.

Some larger firms are considering, or have already implemented an approach to ‘relocate transactions’ to the least burden-some regulatory landscape, and others have moved out of riskier asset businesses altogether.

Of course, moving transactions to the path of least resistance is quite short term’ist when you consider that most major markets, at a minimum, have discussion papers in circulation with regard to regulatory compliance, reporting and central clearing..(albeit some dates still flexible..)

Interested in hearing views..!