The Economic, Legal and Social Dimension of Regulatory Arbitrage

Regulatory arbitrage – the formal compliance with rules while violating their very spirit – is a persistent practice in daily business and subject of perpetual efforts of regulatory institutions to address this issue. Focusing on both, the practice of regulatory arbitrage as well as attempt of regulators and rule-makers seeking to contain it, the articles in this special issue provide a well-rounded, dialectical understanding of the phenomenon. In this vein, Friedrich zooms in on the construct of synthetic leasing as an example of a product, placed in zones of regulatory overlap between tax and accounting to achieve the most beneficial treatment. Kunkel discusses the political dimension of the conceptual underpinnings of financial reporting and how they are linked to regulatory arbitrage in accounting standards. Stanescu and Bogdan focus on tax sheltering in Romanian debt collecting schemes, just as Langenbucher explores the limits of constraining such practices provided by the need to grant a high degree of legal security, as enshrined in the rule of law. Lastly, Thiemann and Troeger inquire into how supervisors can keep up with financial innovations for regulatory arbitrage in the shadow banking sector, suggesting the need for a flexible interpretation of rules and close exchange with the regulated and their regulatory advisors to control their role bending behavior.