101 Concepts for the Level I Exam

Essential Concept 19: Regulatory Interdependencies

According to regulatory capture theory, the regulator is often dominated by individuals who are closely connected with the industry they should be regulating.
Regulatory competition refers to a situation where regulators compete with each other to provide a regulatory environment designed to attract certain entities.
Regulatory arbitrage is where entities may identify and use some aspect of regulations that allows them to exploit differences in regulatory interpretation. Regulatory arbitrage also includes situations where entities try to exploit differences in regulatory regimes in different regions.