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Regulatory Arbitrage Course
 
 
Course Title
Regulatory Arbitrage Opportunities after Basel II and the 8th Company Law Directive of the European Union (Statutory Audit Directive, the European Sarbanes-Oxley)
 
Objectives:
This course has been designed to provide with the skills needed to understand how the 8th Company Law Directive of the European Union and the Basel ii Framework, both create unique regulatory arbitrage opportunities that can be exploited.
 
Target Audience:
This course is intended for Hedge Fund / Portfolio Managers and Analysts who believe in skill-based investing and are open to innovative, creative, non-formulaic, non-algorithmic strategies like regulatory arbitrage.
It is recommended for professionals involved in making investment decisions.
 
Date and Time:
In-House Training
At Baur au Lac, Zurich's landmark.
 
 
 
About the Course
Although this course is a unique approach for the fundamentals, it should also be used by all that prefer technical analysis, because what we will discuss will not be found in financial charts, tables and ratios.
 
Arbitrage is the practice of taking advantage of a difference (usually price difference) between two or more markets.
In order to have arbitrage opportunities, we need to find a difference.
 
Regulatory Arbitrage is the practice of taking advantage of a regulatory difference between two or more markets.
 
Two examples - can you see the opportunities?
A. Basel ii framework
B. The 8th Company Law Directive (the European Sarbanes-Oxley)
 
A. Basel ii is a mandatory framework which is full of differences (different approaches, different deadlines, different options, different national discretions etc. )
 
When we have all these different approaches and options by design (Basel ii is proud of that), we also have "flexible" countries that create opportunities...
... and "non-flexible" countries (compliance is just an obligation).
 
Hedge Funds select the more favorable jurisdictions, playing one government off against another.  Is it fair? Absolutely!
 
The "flexible" countries know that. They have a plan, to retain or attract foreign direct investments. They know that hedge fund managers like shopping, especially "regulator shopping". They try to find the friendliest regime to do business.
 
The "non-flexible" countries complain. They say that a general easing of regulations is a "race to the bottom". And, they continue to lose money, jobs, investments.
 
Basel ii is supposed to be the framework that attempts to align economic and regulatory capital more closely to reduce the scope for regulatory arbitrage. At least, this is what they say.
But, you can not have so many differences (approaches, deadlines, options and national discretions) and the same time to say that you try to reduce the scope of regulatory arbitrage!!! This is an oxymoron.
 
Example: By providing at least three alternative capital calculation methods, Basel II creates
differences that do not exist in Basel I. The treatment of non-investment-grade credits
under the standardized approach is so different from the treatment under the foundation or advanced internal ratings based (IRB) approach.
 
B. The 8th Company Law Directive (the European Sarbanes-Oxley)
After the passage of the US Sarbanes-Oxley Act in 2002, US and non-US companies listed in a US stock exchange have the difficult task to comply with the Sarbanes-Oxley Act.
 
After the passage of the European Union's 8th Company Law Directive on Statutory Audit (Directive 2006/43/EC), European and non-European companies listed in any country of the EU have to comply with the 8th company law directive.
 
The 8th directive is considered the European post Sarbanes-Oxley regulatory retaliation. And, like in the US SOX, there are extremely important extraterritorial consequences.

The Offshore Financial Centers (OFCs) for example must immediately enact legislation to prove that they have an "equivalent level of regulation", to protect their auditors that audit offshore companies with EU listings from being subject to a tough European oversight regime. Otherwise, auditors and audit firms from "third countries" have to be registered in the EU and to be subject to oversight, quality assurance and sanctions.
 
Under Article 45(1) of Directive 2006/43/EC the competent authorities of the Member States are required to register third-country auditors and audit entities that conduct a statutory audit on certain companies incorporated outwith the Community whose transferable securities are admitted to trading on a market regulated within the Community.

 
Article 45(3) of Directive 2006/43/EC requires Member States to subject such registered third-country auditors and audit entities to their systems of oversight, quality assurance systems and systems of investigations and penalties.

The European Commission is required under Article 46(2) of Directive 2006/43/EC to assess the equivalence of third country oversight, quality assurance and investigation and penalties systems in cooperation with Member States and make a determine on it. If those systems are recognised as equivalent, Member States may exempt third country auditors and audit entities from requirements of Article 45 of the Directive on the basis of reciprocity.
 
But...
 
The European Commission has carried out a preliminary assessment of audit regulation in relevant third countries. The assessments have not allowed final equivalence decisions to be taken
 
GROUP 1: Australia, Canada, Japan, Singapore, South Africa, South Korea, Switzerland and the United States have a system of public oversight in place, although for the time being the information about the systems is not sufficient for final equivalence decisions to be taken.
 
GROUP 2: Brazil, China, Croatia, Guernsey, Jersey, the Isle of Man, Hong Kong, India, Indonesia, Israel, Morocco, New Zealand, Pakistan, Russia, Taiwan, Thailand, Turkey and Ukraine, does not have such systems of public oversight but appears to offer a perspective of moving towards them within a reasonable timeframe.
 
GROUP 3: Argentina, Bahamas, Bermudas, Chile, Colombia, Kazakhastan, Mauritius, Mexico, Philippines, United Arab Emirates and Zambia, has in place an audit regulatory framework offering also a perspective of moving towards a system of public oversight in a longer timeframe.

For the second and third groups of third countries, further equivalence assessments WILL take place once each of such third countries has made a public commitment to comply with equivalence criteria.
 
Auditors and audit entities from the third countries should be able to continue their activities in relation to audit reports concerning annual or consolidated accounts for financial years starting during the period from 29 June 2008 to 1 January 2011.
 
REGULATORY ARBITRAGE OPPORTUNITIES - The environment

ARTICLE 45.4. DIRECTIVE 2006/43/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 17 May 2006

"Audit reports concerning annual accounts or consolidated accounts issued by third-country auditors or audit entities that are not registered in the Member State shall have no legal effect in that Member State".

Have a look at companies incorporated in Guernsey, Jersey, the Isle of Man - countries that have NOT equivalent system.

There are several firms incorporated in countries from Group 2 and 3 and listed in Europe. The European regulators have a surprise for them: Their auditors are not recognized in Europe, and their opinion has no legal effect in Europe.

Here the excitements starts...  Just an example:

A. How shareholders react when something has happened (they never understand what) and we can not have consolidated financial statements?

B. What about the Basel ii obligation - the home country is responsible for the consolidated financial statements - when the home country is non-European and the host country is European?

 
Differences = regulatory arbitrage opportunities
 
 
 
 
 
Instructor
 
George Lekatis is the General Manager and Chief Compliance Consultant of Compliance LLC.
 
George is Mathematician, IT and Risk expert, and holds numerous certifications. He is an internationally acclaimed trainer and consultant, and has more than 17,000 hours of teaching experience, leading classes from the States to the Cayman Islands, to Bermuda, to London, to Dubai, to Singapore.
 
Clients and Testimonials
 
 
 
 
 
 
 
 
 
Excellent Courses, Exceptional Venues
The role that the environment plays in learning, solving problems and thinking out of the box is often ignored. In terms of aesthetics and comfort, our venues are second to none.
 
Baur au Lac is Zurich‘s prestigious landmark. Residing in its own private park on the shore of the lake with a unique location at the beginning of the fashionable Bahnhofstrasse, Zurich‘s famous shopping and business district, Baur au Lac is only a stone‘s throw away from all major cultural and tourist attractions.
 
The hotel is the ultimate in luxury, comfort and the most modern amenities, evoking the intimate atmosphere of a private home in the best location in Zurich. The hotel is one of the founding members of "The Leading Hotels of the World" and of "Swiss Deluxe Hotels".
 
Baur au Lac - The official web site - Click Here
 
 
 
 Click here to see our venues
 
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This course can be delivered also at your venue and can be customized to meet specific needs
 
In-House Training
Fully tailored training, presented exclusively for your own people.  We will work on your premises or at a venue of your choice, on a fixed fee.
 
 
 
 
Hedge Funds - Compliance Training and Presentations
 
Fully tailored training, presented exclusively for your own people
Compliance LLC is pleased to offer an exciting range of training and consulting services. We can help your organization understand better the compliance challenges for the Hedge Funds in the context of the UCITS iii directives, the Markets in Financial Instruments Directive (MiFID) and the Financial Services Action Plan (FSAP) of the European Union.
 
What we can do for you:
In-company Awareness, Training and Presentations.
 
1. Presentations
60 - 180 minutes
 
2. Overview of the directives and the new challenges and opportunities
60 minutes to one day
 
3. Tailor made presentations and training
Let us know what you need 

The courses are intended for:

  • Hedge Fund Managers and Portfolio Managers
  • Hedge Fund and Fund of Funds Prime Brokers
  • Institutional Brokerage Houses
  • Investment Professionals
  • Wealth Management Firms
  • Professionals responsible for the structure and marketing of financial products
  • Family Offices

For Hedge Funds and MiFID: Please visit
www.markets-in-financial-instruments-directive.com
www.mifid-training.com
www.mifid-board-directors.com
 
For Hedge Funds and UCITS: Please visit
www.ucits-iii.com
www.ucits-iii-training.com
 
For Securitization after Basel ii: Please visit
www.basel-ii-securitization.com
 
 
 
 
 
 
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Our Bookstore
We have some great book recommendations
 
We have decided to work with Amazon, as they have the best prices and great choice. If you decide to buy, you will be redirected to our Amazon astores.
 
Algorithmic Trading and Financial Mathematics Books
http://astore.amazon.com/algorithmic_trading-20
 
Alternative Investments Books
http://astore.amazon.com/alternative_investments-20
 
Arbitrage Books
http://astore.amazon.com/arbitrage-20
 
Books about Investing
http://astore.amazon.com/books_about_investing-20
 
Hedge Funds Books
http://astore.amazon.com/hedgefundbooks-20
 
Hedge Fund Magazines and E-books
http://astore.amazon.com/hedgefundmagazines-20
 
Quantification of Risk Books
http://astore.amazon.com/quantificationofrisk-20
 
Value At Risk Books, Monte Carlo Simulation Books
http://astore.amazon.com/valueatrisk-20

 

 

 

 

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