Regulatory competition as a social fact: Constructing and contesting the threat of hedge fund managers' relocation from Britain

Concerns about national competitiveness can undermine the prospects of enhanced financial regulation, as the threat of industry relocation makes states less willing to tighten rules. This logic seems applicable in the case of the European Alternative Investment Fund Managers Directive: in fear of managers relocating, the UK, which hosts almost the entire European alternative investment sector, successfully advocated a watering down of the proposed requirements. This paper, however, questions the origins of the - seemingly natural - British negotiation position. The empirical record confirms that the relocation threat is not a necessary fact imposed by a global logic of market forces, but a scenario constructed and contested both by the regulator and firms. The scale and imminence of the threat posed to the UK's competitiveness depends on the use and function of competing narratives about hedge fund managers' relocation and these narratives inform the behaviour of both hedge fund managers and their regulator. The British authorities hence not only influence the degree of regulatory competition through acts of liberalisation, but also through their influence on dominant narratives. This means that regulatory competition is a social, not a brute fact, and that the associated power relationship between state and market actors is discursively produced.