The British weekly magazine, the Economist, has recently presented an interesting overview of some of the consequences of the US Dodd-Frank act. This act was the direct result of the financial crises the autumn 2007.
As most laws of which the intentions are good. One of the problems however is that these intentions are not clearly defined. One obvious goal is to avoid a similar collapse of parts of the financial systems that happened in 2007 and 2008. But also a lot of other goals seem to have included provisions for protecting consumers, protect shareholders, protect against “war” minerals from developing countries, protectionist considerations etc.
This has according to the Economist, created a “monster” that is still growing. A new branch of the legal industry has been created that live very well on this law and this is even before the litigation. This complexity also creates possibilities for creative people to exploit the loopholes in the system while “quality” creativity which means to develop products and services for what the market really needs will be hurt.
It will obviously be much more cost efficient for big institutions and other established and - not at least - well connected institutions to comply to such large and complex regulations. In my view this will further enhance Asian institutions to strengthen its position in the global markets. Especially where it’s a good legal framework and good predictability, the potential for developing new ideas and implement them will have a competitive advantage compared to US institutions.
Arun Panchariya is specialising in cross border transaction between Asia, Europe and the US
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