Regulatory arbitrage

Regulatory arbitrage,

Definition of Regulatory arbitrage:

  1. Regulatory arbitrage is difficult to prevent entirely, but its prevalence can be limited by closing the most obvious loopholes and thus increasing the costs associated with circumventing the regulation.

  2. Situation where companies take advantage of loopholes in order to avoid unprofitable regulations. For example, a company may relocate its headquarters to a country with lower tax rules and favorable regulatory policies to save cost and increase profit.

  3. Regulatory arbitrage is a practice whereby firms capitalize on loopholes in regulatory systems in order to circumvent unfavorable regulations. Arbitrage opportunities may be accomplished by a variety of tactics, including restructuring transactions, financial engineering and geographic relocation to amenable jurisdictions.

How to use Regulatory arbitrage in a sentence?

  1. This practice is often legal as it takes advantage of existing loopholes; however, it is often considered unethical.
  2. Regulatory arbitrage is a corporate practice of utilizing more favorable laws in one jurisdiction to circumvent less favorable regulation elsewhere.
  3. Closing loopholes and enforcing regulatory regimes across national borders can help reduce the prevalence of regulatory arbitrage.

Meaning of Regulatory arbitrage & Regulatory arbitrage Definition