Jim Hamilton reports that SEC Chairman Mary Shapiro told Congress that she's trying to get foreign securities regulators to help prevent regulatory arbitrage:
SEC Chair Mary Schapiro said that the SEC has been actively engaged with international securities and market regulators through informal conversations and more formally through participation in various international task forces and working groups and encouraging coordination and limiting opportunities for regulatory arbitrage. In testimony before the House Financial Services Committee, she noted that the SEC staff has encouraged international securities regulators that are contemplating OTC derivatives market reforms to use the Dodd-Frank Act and its regulations as a model for developing robust and complementary regulatory regimes.
Because the OTC derivative marketplace already exists as a functioning global market with limited oversight or regulation, said the Chair, international coordination is needed to limit opportunities for cross-border regulatory arbitrage and competitive disadvantages, and to address unnecessarily duplicative and conflicting regulations.
What regulatory arbitrage means in this context is that transxaction planners will seek out the jurisdiction that allows them to raise the maximum amount of money at the lowest cost. Regulatory arbitrage wouldn't be a problem for Chairman Shapiro but for the fact that the Congress and SEC through Sarbanes-Oxley, Dodd-Frank, and the rest of our regulatory apparatus have created an incredibly onerous and costly system that discourages capital formation in the US and funnels investment to foreign markets that are more competitive.
See my article Corporate Governance and U.S. Capital Market Competitiveness, which argues that:
During the first half of the last decade, evidence accumulated that the U.S. capital markets were becoming less competitive relative to their major competitors. The evidence reviewed herein confirms that it was not corporate governance as such that was the problem, but rather corporate governance regulation. In particular, attention focused on such issues as the massive growth in corporate and securities litigation risk and the increasing complexity and cost of the U.S. regulatory scheme.
Tentative efforts towards deregulation largely fell by the wayside in the wake of the financial crisis of 2007-2008. Instead, massive new regulations came into being, especially in the Dodd Frank Act. The competitive position of U.S. capital markets, however, continues to decline.
This essay argues that litigation and regulatory reform remain essential if U.S. capital markets are to retain their leadership position. Unfortunately, the article concludes that federal corporate governance regulation follows a ratchet effect, in which the regulatory scheme becomes more complex with each financial crisis. If so, significant reform may be difficult to achieve.