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Do you think more regulated jurisdictions are less competitive than those that have fewer rules to comply with?

12 June 2015 by Henry Ker

As businesses become increasingly international in their operations, the question as to whether more stringent regulation can actually put off companies from expanding into new jurisdictions is becoming more relevant. For example, the UK Bribery Act goes much further than the Foreign Corrupt Practice Act in the US and could discourage new investment in the UK as companies seek an easier, and therefore cheaper, set of regulations to work within.

We posed this question to the Governance and Compliance/Core community and the results were evenly split three ways, with exactly one third answering ‘Yes’, 38% saying ‘No’ and 29% opting for ‘Don’t Know’.

Out of those who answered ‘Yes’, a portion formed their answer based mainly on their own personal experiences, in terms of an increased workload – for example, one answered: ‘We spend disproportionate time on Bribery Act, insider dealing and audit issues.’ Others extended their ideas to connect with the wider question, with one stating that the cost of compliance directly relates to decreasing competition: ‘Significant sums are spent on compliance with the rules and on checking compliance. This makes companies less competitive’. Another said that: ‘Heavier regulation slows down business decision making, and incurs additional cost, to make sure companies are compliant.

This naturally makes companies less competitive’. They went on to qualify this statement, saying ‘… there is an issue of the role of companies in society, and accepting that some reduction in competiveness is reasonable to prevent unacceptable behaviour ... extra regulation in the long term can be beneficial, for example customers may not want to purchase clothing made with child labour, those customers moving to well regulated and transparent companies. So the issue is not binary and is more graduated.’

The respondents who answered ‘No’ focused on the theory that more stringent regulation makes a market more attractive as it is safer for businesses to operate in. For example, one commented that although ‘it may put some off, it probably entices others looking for safe investment’ and another answered: ‘Being regulated to a sensible level encourages competitiveness and those jurisdictions are seen as professional and less risky and therefore attract business and investment.’ A third agreed with this, proposing that:  ‘Although a regulatory burden may appear to increase costs, it may increase competitiveness in other ways, for example, by increasing the confidence potential trading partners have in companies from a particular jurisdiction.’

These views were backed up by the suggestion that ‘… there is currently a backlash against unregulated jurisdictions.’

The final group were undecided. Some said that it depended on the kind of company: ‘…more regulated jurisdictions are less flexible and the costs of running the business are higher, so the business needs to be a certain size [so that] competitive edge is not lost’.

Others argued that although costs will be incurred in one area, they can be recouped in others: ‘…regulation can help to provide comfort to consumers – if they have confidence in the system, they could be more confident when purchasing’. Another commented ‘genuinely treating customers fairly … makes good business sense in the long run but [in the] short term I know firms that have lost out to less scrupulous players’, suggesting that the possible benefits and drawbacks to operating in more regulated jurisdictions are far from clear.

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