A Risk Characterization of Regulatory Arbitrage in Financial Markets

Minto, Andrea; Prinz, Stephanie; Wulff, Melanie

doi:10.1007/s40804-021-00219-x

Cited by 3 publications

(2 citation statements)

References 43 publications

(24 reference statements)

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“…To clarify things, both terms describe instances of market participants’ opportunistic conduct (Castellano, 2012), not necessarily coinciding with each other. In fact, some authors tend to attribute the meaning of “forum shopping” only to what I described earlier as “jurisdictional arbitrage” (Minto et al , 2021). However, this could be, probably, a rather simplistic view.…”

Section: Defining and Clarifying “Jurisdictional Arbitrage”mentioning

confidence: 99%

Jurisdictional arbitrage: combatting an inevitable by-product of cryptoasset regulation

Draganidis

2022

JFRC

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Purpose This paper aims to provide an overview of different issues related to jurisdictional arbitrage found in general regulatory arbitrage literature and their projection to the specific area of cryptoasset regulation. Design/methodology/approach By distinguishing any parallel, analogous and neighbouring concepts, this paper attempts to clarify the notion of jurisdictional arbitrage. By discussing certain aspects and effects of three regulatory regimes, BitLicense, 5th Anti-Money Laundering Directive (AMLD5) and the European Commission’s Proposal for a Regulation on Markets in Crypto-assets (MiCa), it makes clear that national/State/regional policymakers have already failed to create arbitrage-proof regulatory frameworks by acting exclusively within their jurisdictional limits. Against this background, this paper discusses briefly regulatory competition and international harmonisation as alternative solutions to inappropriate and ineffective national/regional legislative approaches. Findings Based on a structured theoretical analysis, this paper reaches three important findings. First, academics, international bodies and other commentators use inaccurately the general concept of “regulatory arbitrage” to refer to the specific problem of jurisdictional arbitrage creating in this way an interpretative confusion; second, commentators confuse jurisdictional conflicts with jurisdictional arbitrage; third, the solutions to this regulatory problem can actually be found in its underlying causes. Originality/value To the best of the author’s knowledge, this is the first specific-issue paper on jurisdictional arbitrage in the context of cryptoasset regulation and aims to trigger further academic discussion on this evolving phenomenon and inform the development of future cryptoasset regulation combatting this problem.

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Section: Defining and Clarifying “Jurisdictional Arbitrage”mentioning

confidence: 99%

Jurisdictional arbitrage: combatting an inevitable by-product of cryptoasset regulation

Draganidis

2022

JFRC

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“…However, other crypto assets present features that made them escape the existing regulatory frameworks, with the risk that each member state could adoptas it was the case, indeed!different regulatory and supervisory approaches, opening up venues for regulatory arbitrage and moral hazard (Minto et al, 2021).…”

Section: Introductionmentioning

confidence: 99%

Banks’ internal governance obligations vis-à-vis money laundering risks emerging from the new technology-enabled means to transfer funds or value (“crypto assets”)

Minto

2024

JMLC

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Purpose The new technology-enabled means to transfer funds or value via crypto assets have prompted regulators and supervisors to question the effectiveness of the anti-money laundering (AML) regulatory framework. This paper aims to examine the recent developments of the EU AML legislation – leading up to the 2021 AML package – focusing in particular on the banks’ internal governance obligations. Design/methodology/approach The analysis is based on the legal dogmatic methodology and is therefore conducted thanks to a critical exam of the current and upcoming EU policy and legislation, taking into account the relevant literature and case-law. Findings The recent regulatory developments, culminating in the AML regulation, are strengthening the causal links between ML risk assessment–ML risk exposure–ML risk management, via internal governance procedures. One of the major AML regulatory strategies to react to the new challenges brought up by crypto assets amounts to a stricter and more demanding AML risk management regime imposed on banks. Originality/value The originality of this article lies in the analysis of the causal connection between money laundering risk identification and internal governance obligations. In particular, this article examines how the risk assessment will be shaping the organizational procedures, processes and internal functions necessary to manage the money laundering risks.

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Hare or Hedgehog? The Role of Law in Shaping Current Technological Trends in the Securities Post-trading System

Droll

Minto

2022

Accounting, Economics, and Law: A Convivium

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This article examines current technological trends in the securities post-trading system and the role of law in shaping these developments. Against this backdrop, we analyse (i) recent initiatives that aim at technologically improving the traditional post-trade system, (ii) projects that aim at enhancing the efficiency of post-trade processes related to traditional securities by using distributed ledger technology and (iii) post-trade issues related to the rise of crypto-assets and decentralised finance. We argue that the current role of law in shaping these technological trends is different in these three contexts. Regarding crypto-assets, the law can be likened to the hare in the Brother Grimms’ well-known fairy tale: It struggles in vain to keep up with developers in the crypto-asset system (who represent the hedgehog in the fairy tale). With regard to projects that aim at bringing distributed ledger technology to the post-trading of traditional securities, the roles are, in our view, reversed – the law plays the role of the hedgehog that, maybe unfairly, prevents the innovators (the hare) from succeeding. Finally, as regards two important technological trends in the traditional post-trading system that we analyse in this article different relationships emerge: In one case, the law (as hedgehog) “coaches” the industry (as hare) in its quest to implement technological improvements. In the other case, the law (as hedgehog) needs to prod the industry (the hare) into relevant action.

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A Risk Characterization of Regulatory Arbitrage in Financial Markets

Cited by 3 publications

References 43 publications

Jurisdictional arbitrage: combatting an inevitable by-product of cryptoasset regulation

Jurisdictional arbitrage: combatting an inevitable by-product of cryptoasset regulation

Banks’ internal governance obligations vis-à-vis money laundering risks emerging from the new technology-enabled means to transfer funds or value (“crypto assets”)

Hare or Hedgehog? The Role of Law in Shaping Current Technological Trends in the Securities Post-trading System

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