Regulatory Arbitrage

Regulatory arbitrage is a practice where firms exploit the regulatory difference between different markets in order to circumvent unfavourable regulation. This can be achieved by conducting business, managing products and services in locations that have lower regulatory standards.

To close down regulatory arbitrage, the Financial Action Task Force (FATF) encourages its member countries to apply the FATF recommendations consistently and effectively. Quoting from the then incoming President of the FATF XXVI, Roger Wilkins:

In an increasingly global financial system, we are only as strong as our weakest links.