Q34. What is regulatory arbitrage risk—and how does monitoring help firms avoid it?

Regulatory arbitrage occurs when a firm's operational structure exploits gaps or inconsistencies between jurisdictions' regulatory frameworks—intentionally or not. The risk is that jurisdictions are actively closing these gaps through bilateral agreements, FATF mutual evaluations, and coordinated enforcement. Firms operating in multiple markets need monitoring that identifies when a previously permissive jurisdiction is tightening to match a stricter standard, so they can adjust before the arbitrage window closes and becomes a compliance exposure.