Kaal claims by topic: regulatory-failure

140 atomic, individually citable claims from the published work of Wulf A. Kaal tagged regulatory-failure.

Even if the ECJ has embraced the incorporation theory, Member States can still frustrate Type B regulatory competition through tax law, capital market law, listing requirements and other mechanisms, so the seat theory may retain de facto dominance. 2004
Member States can avoid at least part of the result in Centros and Inspire Art by recharacterizing what used to be corporate law as creditor protection law, provided the recharacterized rule does not discriminate against foreign corporations. 2004
A retail investor asset threshold would be gamed: managers would be incentivized to keep retail assets under the applicable threshold, thereby keeping the fund in the existing regulatory scheme without implementing additional retail investor protection. 2009
The Lehman Repo 105 transactions, consummated in London but booked as sales in Lehman's US securities filings, underscore the effect that conduct in one country can have on markets elsewhere. 2010
For European jurisdictions the extraterritorial application of US law creates confusion and legal uncertainty and makes it harder to regulate private parties who engage in regulatory arbitrage by taking their litigation to the United States when convenient. 2010
Non-US individuals and companies are expressly prohibited by US law from contributing to US political campaigns and have a relatively weak lobby in Washington, which places EU financial intermediaries at a competitive disadvantage in the US political system. 2010
Without a degree of international convergence in contingent capital rules, regulatory arbitrage could undermine the establishment of contingent capital as an integral part of financial markets. 2011
The AIFM Directive could create incentives for regulatory arbitrage and could provoke retaliatory action by countries outside the European Union. 2011
Hedge fund managers subjected to stricter rules in one jurisdiction while competing with funds in less restrictive jurisdictions could be placed at a comparative disadvantage. 2011
Legislators had disincentives to impose harsher requirements on the hedge fund industry before the crisis, because harsher regulation could have driven franchise taxes and other business to offshore centers. 2011
Basel III capital charges based on a bank's lending exposure to hedge funds could help address the threat of regulatory arbitrage. 2011
Treating the U.S. location of a broker as making the securities purchase domestic would circumvent most of the Morrison holding, since a foreign buyer of foreign securities could invoke U.S. law simply by routing the order through a U.S. broker. 2011
Where bank resolution regimes are not coordinated across jurisdictions, the same systemically important financial institution can be handled in opposite ways: it might petition for reorganization under German law and emerge leaner and more competitive, while its United States operations are liquidated under the Boxer Amendment of the Dodd-Frank Act. 2012
Because most national crisis responses took the form of public bail-outs adopted without broad international consensus, they increased the threat of international regulatory arbitrage and damaged the global competitiveness of national financial markets. 2012
Without a degree of similarity and convergence in bank resolution and contingent capital rules, regulatory arbitrage will work against establishing contingent capital as an integral part of financial markets. 2012
Harmonization invites its own defeat by creating an incentive for rogue jurisdictions to attract, into their legal systems, the private actors who do not agree with the harmonized rule. 2012
Because Title IV's registration exemptions are broad enough to threaten the rule they qualify, the Dodd-Frank Act deliberately gives the SEC rulemaking authority to keep the exemptions from swallowing the rules. 2012
Managers who avoided registration by restructuring, for example by changing organizational form or assets under management, are practically and administratively very difficult to identify, so the population that adapted away from the rule remains largely unobservable to researchers. 2012
Where the Form PF quarterly reporting threshold does influence behavior, it distorts fund size downward: a majority of the advisers who take the threshold into account plan to stay under $1.5 billion in assets under management, and some would close funds to new investors to do so. 2012
Divergent national definitions of Tier 1 capital produce a distortion: financial institutions in countries with stricter definitions that exclude contingent capital appear to hold less capital and thinner capital cushions than institutions in countries with broader definitions, and investors may read that appearance as a negative attribute. 2012
Governance adjustments made through stable rules in reaction to a systemic shock can result in suboptimal governance outcomes, market volatility, and economic loss. 2013
Rules established in reaction to financial crises inevitably fail to soften, curtail, or preempt the effects of financial crises, because reactive rules are tailored to the economic and regulatory issues existing at the time of enactment and ignore possible future contingencies. 2013
The aftermath of a financial crisis creates shock conditions that constitute a suboptimal environment for rulemaking. 2013
In the competition to shape financial policy through rulemaking, small and well organized special interest groups such as the financial industry dominate latent groups such as dispersed investors. 2013
The cyclical nature of public rulemaking under incomplete information and bounded rationality is costly and produces suboptimal regulatory outcomes with long-term implications for financial markets and the economy. 2013
Regulatory cycles make it nearly impossible to address financial regulatory concerns adequately, and systemic risk in particular is difficult to address if rules are enacted in a cyclical and reactive format. 2013
In the current regulatory environment the relationship between the regulatory sine curve and the common elements of banking and financial crises is suboptimal, because regulatory activity only begins its ascent once bank failures are already increasing. 2013
The core problem for financial regulation is timing: governance improvements are not enacted before crises when they are most needed, because the collective action problem makes financial regulation mostly reactive and tied to business cycles. 2013
Financial rulemaking often relies on centralized rather than decentralized information, which is a further defect of the existing framework. 2013
Contingent capital triggers have significant design limitations: accounting based triggers may not respond adequately in financial crises because they are updated too infrequently, while market based triggers are susceptible to market manipulation and bank runs. 2013
Prosecutors negotiating deferred prosecution agreements may lack the expertise needed to negotiate high level corporate governance changes such as personnel changes and internal corporate and compliance procedures. 2013
A classic collective action problem controls rulemaking: smaller and better organized special interest groups usually dominate latent groups such as dispersed investors in the competition to shape rules. 2013
The central compromise in Revised Rule 2019 is that parties need not disclose the price or the date of acquisition of disclosable economic interests, which is precisely the outcome the hedge fund industry lobbied for. 2013
The pre Dodd-Frank exemption for advisers with fewer than fifteen clients failed as a regulatory boundary because most hedge fund advisers deliberately designed their operations and legal structures to fit within it and thereby escape SEC registration and supervision. 2013
Strategic behavior by fund advisers around the assets under management registration threshold produces a strong increase in the measured discontinuity at that threshold. 2014
The Dodd-Frank Act registration threshold creates incentives strong enough that some advisers opt out of registration and disclosure by strategically changing their AUM size to stay below $150 million. 2014
Freedom from significant regulatory oversight is what historically enabled hedge funds to run more exotic, more leveraged strategies aimed at absolute returns. 2016
Ex post facts-based, trial-and-error rulemaking combined with stable and presumptively optimal rules often produces suboptimal regulatory outcomes, and those outcomes are no longer sustainable in an environment of exponential disruptive innovation. 2016
In an environment of exponential disruptive innovation, the information rulemakers need is less likely to materialize soon enough for traditional rulemaking to be effective, regulatory issues become more complex, and unknown future contingencies increase substantially. 2016
Exponential disruptive innovation has the potential to overwhelm the existing regulatory process entirely, not merely to strain it. 2016
When disruptive firms do not comply with existing rules or effectively create their own exemptions because the existing framework does not reach them, public policy goals can be undermined and incumbent firms that remain subject to the rules suffer severe competitive disadvantages. 2016
Incumbent firms facing a perceived threat from disruptive innovation may respond by using the existing regulatory process itself to create obstacles that prevent disruptive firms from competing. 2016
The existing regulatory infrastructure cannot sufficiently distinguish beneficial innovation from harmful innovation and therefore cannot harness the beneficial kind. 2016
The current regulatory framework lacks any mechanism that anticipatorily informs rulemakers of beneficial innovative ideas, and because the rulemaking process prohibits ex parte communications and integrates cross-industry brainstorming poorly, the process may actually undermine innovation. 2016
Because facts-based rulemaking does not anticipate the regulatory issues created by innovation, rulemakers may realize far too late, or never, what new regulatory demands a given innovation generates. 2016
Formal rulemaking is simply too time-consuming for an environment of disruptive innovation; the speed of product innovation alone makes formal rulemaking in the existing infrastructure unworkable. 2016
Because it lacks anticipatory capabilities, the existing regulatory system only addresses regulatory issues ex post, and then only if core constituents are burdened enough to generate sufficient political pressure for lawmakers to act. 2016
Evidence exists that the suboptimal ex post timing of rulemaking in the existing regulatory infrastructure regularly forces expedited rulemaking, which in turn produces suboptimal regulatory outcomes. 2016
The current process of rule revisions, amendments, and repeals used to correct the inevitable shortcomings of stable rules is costly and time-consuming, and in the authors' estimation it cannot keep track of future innovations and their corresponding regulatory needs. 2016
A core problem for most regulation is its inaccurate and delayed timing, which follows from the collective action problem of regulation, path dependencies, and political inertia rather than from any single institutional defect. 2016
The decline in later stage robotics and drone investment rounds in the United States does not indicate stalled technological development; companies relocate later stage development to other countries because of the regulatory disconnect that exists in the United States. 2016
Existing regulatory processes are suboptimally equipped to address the challenges of exponential disruptive innovation, and the notice and comment procedures of the Administrative Procedure Act and the SEC illustrate the resulting suboptimal regulatory response rates. 2016
Before the financial crisis of 2008 to 2009, the standard AIMA and MFA due diligence questionnaire templates were often deployed defensively: managers used the old versions to steer investors away from questions that would have exposed weaknesses in the managers' controls. 2016
Direct regulation of hedge fund leverage collapses on the details because balance sheet leverage is not an adequate measure of risk and would push funds into off-balance sheet avoidance strategies. 2016
The SEC's 2004 attempt to require hedge fund adviser registration failed: after the D.C. Circuit vacated the rule in Goldstein v. SEC, the overwhelming majority of private fund advisers that had registered under the 2004 requirements deregistered. 2016
Because the Dodd-Frank Act discouraged banks from growing too large and made bank lending harder, private funds and other alternative lenders filled the resulting void by financing small and medium sized businesses that traditional banks no longer served. 2016
Changing AUM preferences driven by compliance costs could eventually produce industry consolidation aimed at cost savings, or drive a shift toward family offices that manage no third-party assets and therefore escape the regime. 2016
Unconstrained mutual funds combine the regulatory structure of a mutual fund with the investment strategy of a private fund implementing a credit strategy and principally trading fixed income instruments, which lets them transcend traditional investment and legal distinctions. 2016
The investor eligibility line has become arbitrary in the credit space: private funds implementing substantially the same investment strategy as a fixed income unconstrained mutual fund, and carrying substantially the same risks, may be sold only to high net worth and sophisticated investors through private placements. 2016
Ex post trial and error rulemaking built on stable and presumptively optimal rules produces suboptimal regulatory outcomes that are no longer sustainable once disruptive innovation grows exponentially. 2016
Under exponential disruptive innovation the information rulemakers need arrives too late for trial and error rulemaking to be effective, regulatory issues grow more complex, and unknown future contingencies in the rulemaking process increase substantially. 2016
Exponential disruptive innovation has the potential to overwhelm the existing regulatory process outright, not merely to strain it. 2016
When disruptive firms do not comply with existing rules or write their own exemptions because no appropriate rules exist, consumer protection and public safety goals are undermined and incumbent firms still bound by the rules suffer severe competitive disadvantages. 2016
Incumbent firms facing the competitive disadvantage created by disruptive entrants respond by using the existing regulatory process itself to build obstacles to competition, which converts rulemaking into an instrument of incumbent protection. 2016
Rulemakers' inability to address the regulatory issues raised by disruptive innovation will generate high levels of legal uncertainty and inconsistency, and that uncertainty inhibits innovation during technological transition periods. 2016
Technological transition will be a permanent state in the age of disruptive innovation, so the uncertainty and inconsistency caused by rulemakers' inability to react in time is a standing condition rather than a transitional cost. 2016
The current regulatory framework contains no mechanism that succinctly and anticipatorily informs rulemakers of beneficial innovative ideas, which is the specific informational gap the article proposes to fill. 2016
The existing rulemaking process prohibits ex parte communications and insufficiently integrates brainstorming and ideas across industries, and therefore may actually undermine innovation rather than merely lag behind it. 2016
Ex post trial and error rulemaking requires as a precondition that information about optimized rule requirements becomes available, and in an age of exponential innovation that information may never materialize or may arrive too late for the method to work. 2016
Because it lacks anticipatory rulemaking capability, the existing regulatory system addresses issues only ex post, and only once they have materialized and burdened core constituents enough to generate political pressure on lawmakers. 2016
Evidence shows that the suboptimal ex post timing of rulemaking regularly forces expedited rulemaking, and expedited rulemaking itself produces suboptimal regulatory outcomes. 2016
The current process of rule revisions, amendments, and repeals used to fix the inevitable shortcomings of stable rules is costly, time consuming, and in the authors' estimation cannot keep track of future innovations and the regulatory needs they create. 2016
Adaptive rulemaking reduces the collective action problem because with fewer stable rules, latent majority groups and dominant minority groups have fewer opportunities to influence a continuously and timely adapting rulemaking process. 2016
The existing framework for optimal rules is self reinforcing: it perpetuates rulemaking processes that produce more optimal rules requiring costly revision, updating, and revocation, so suboptimal rules and suboptimal processes reproduce each other. 2016
Venture capital has outrun regulation and regulation is now too slow to react, and that lag itself damages the process. 2016
Regulating blockchain through the non anonymous application of the technology creates large inefficiencies that will be bypassed by the more efficient anonymous applications, and it is for those more advanced applications that a system of distributed jurisdiction will be needed. 2017
Proposals to improve close-out netting agreements and to harmonize standard documentation across jurisdictions are likely to run into jurisdictional arbitrage and national protectionism. 2017
Fund managers are unlikely to escape bank based indirect supervision by terminating a lending relationship, because their dynamic trading strategies depend on the immediate availability of capital and lending relationships now face increased scrutiny. 2017
The identification of which facts count as relevant or irrelevant can be distorted by the concerns of entrenched interests that find the new technology commercially threatening. 2017
The problem is not regulator bad faith: the acceleration of innovation cycles means that selecting the relevant facts is difficult even under the best conditions and with the best intentions, while simply waiting is likely to bring further complications and criticism. 2017
When the bench of arbiters is small, a powerful private user can capture it in advance by spending heavily to engage the bench through separate contracts, mirroring the way powerful firms pay retainers to judges in the United States legal system. 2018
ICOs enable borderless online sales with fewer points of friction, letting promoters bypass typical legal, jurisdictional, and business hurdles by marketing directly to a worldwide investor pool. 2018
The FCA has acknowledged that distributed ledger technology has unique aspects capable of working around current regulations. 2018
A Web of Trust reputation system can be gamed with sockpuppet accounts, because an attacker can behave well for a while and then transact with himself repeatedly and rate himself high to raise his reputation arbitrarily. 2018
In an economic network where real money is at stake, historical good behavior cannot be assumed to prove future good behavior, because sockpuppet accounts allow participants to game the system automatedly, create valuable reputation falsely, and leach value out of the system. 2018
No single, fixed, entirely algorithmic policing solution can completely prevent independent nodes in a distributed system from gaming block production to advantage some parties over others. Any consensus protocol that relies on a permanently fixed rule set will therefore be gamed as conditions change. 2018
If the bench institutes protocols for rejecting applicants through the validation pool, it gains both the incentive and the opportunity to block all new users entirely, so that existing bench members keep sharing all the fees among themselves. 2018
Participants must be incentivized to improve their own utility while simultaneously benefiting the institution over the long run; without that duality of incentivization, rational and opportunistic internal and external constituents will attempt to game the governance design. 2019
Static complex sets of DAO rules inevitably produce corruptive opportunistic gaming and arbitrage behavior, so effective DAO governance designs should be focused on dynamic elements. 2019
Overcoming attempts by rational and opportunistic internal and external constituents to game a DAO's governance design requires a duality of incentives, in which actors improve their own utility while their actions simultaneously benefit the whole institution over the long run. 2020
Stable and presumptively optimal static or constitutional rules for DAO governance typically enable gaming and arbitrage opportunities, because rational opportunistic parties will circumvent complex static rules to increase their share of power and profit. 2020
The assumption by ICO issuers that token sales let them circumvent securities registration and disclosure requirements proved to be a fallacy for many U.S. issuers, who faced increased SEC enforcement actions in late 2019. 2020
Effective institutional governance requires a duality of incentives, namely incentives for actors to improve their own utility while their actions simultaneously benefit the whole institution over the long run, in order to defeat rational and opportunistic attempts to game the design. 2021
When fungible assets are the dominant incentive design in the governance of a DAO with identifiable actors, rational and opportunistic internal and external participants will typically attempt to corrupt that governance design for their own gain. 2021
In any open and democratic system, naturally opportunistic rational parties will attempt to circumvent and game the applicable complex static rules to increase their share of power and profit. 2021
No static set of rules can perfectly reflect the will of a group without leaving loopholes that adversaries exploit to profit at the majority's expense, and this produces a permanent arms race between policing and those who push the rules to their limit. 2021
Given a process with static rules and finite, discrete execution, a sufficiently patient and clever minority can always corrupt the process and profit at the majority's expense while following the rules, so no perfect voting system exists. 2021
Rating systems on centralized marketplaces are actively gamed: new Amazon sellers are solicited by sock puppet operators offering to inflate their ratings and attack competitors. 2021
Centralized platforms are locked into an arms race in which developers infer the rules of the ranking algorithm and exploit them, forcing the owner to keep the algorithm opaque and under constant revision. 2021
Paid corporate contributors are a source of tension in open source communities: they can outwork and push out volunteers, then leave once their employer's duties are complete, leaving no one to maintain and upgrade the software. 2021
The success of the open source movement itself creates a vulnerability: major corporations can pressure smaller projects to reveal their code, then take it and exploit the work more profitably than the startup can. 2021
Applying the trust label to digital asset firms without an accompanying fiduciary duty is problematic, because the typical legal obligation of a trust company is to place customers' interests above its own. 2021
Government decentralization at the local level can favor local elites and may overcomplicate the coordination of national policies. 2021
DeFi's disruptive potential may be blunted by incumbents: existing financial institutions can adopt decentralized technologies inside a controlled environment, capturing benefits such as transparency and interoperability while preserving centralized oversight. 2021
The engineering assumption that such problems can be entirely avoided through perfect system design is naive: exceptions will always exist because business competition always seeks optimal solutions that sit at the limits of the rules. 2021
Because major social media platforms are privately and centrally owned, their governance processes and reputation distribution algorithms are necessarily opaque, since their users' incentives are not aligned to police reputation against gaming. 2021
Uptime based reward policies invite Sybil style abuse: on the original Casper testnet single persons ran fifteen or more validator nodes to exploit cloud provider promotions and the DEVxDAO rewards policy, extracting rewards without contributing to the validator group. 2021
When the letter of the law becomes more important than the spirit of the law, internal competition for power makes the winning strategy to push behavior to the limit of what is acceptable. 2021
Rigidity generates corruption: because a rigid organization ignores new information incompatible with its structure, the unexploited value creates an opportunity for an individual to capture it for personal advantage rather than for the group. 2021
The hybrid smart contracting model is defective because VCs are partially incentivized to fund and stake only the best deals while staking on less optimal deals that the market mostly funds, which undermines their long term reputation accumulation. 2021
Legislation is the wrong remedy for oracle exploitation, because the existence of an arbitrage opportunity means systems will evolve around whatever rules exist in order to exploit the advantage; the proper response is to engineer a better system. 2021
The protocols governing how a particular oracle question is answered should be set by the subject matter experts themselves rather than by a static centralized hierarchy, because the experts know best how their own system can be gamed and how to prevent that gaming to protect their hard earned reputation. 2021
Popularity based ranking cannot substitute for editorial control, because people end up relying on unconscious algorithms to determine what is authoritative and the Folk Theorems establish that such algorithms can always be gamed. 2021
A Web of Trust style reputation ledger, in which each party rates each transaction and reputation is summed with weightings by rater reputation, will have all of its value drained by the sockpuppet attack, because an attacker can build reputation through transactions between their own fake accounts and then use it to cheat. 2021
Distributing salary equitably, for example equally to all members, is self-defeating: the obvious gaming strategy becomes creating multiple accounts and distributing one's work between them, which is why the salary must be reputation-weighted. 2021
In hierarchical structures where members are siloed and have few formal connections across tiers, letting service providers create the regulations produces moral hazard, because the provider has an incentive to weaken standards and regulations. 2021
Transcendental values must remain transcendental, because once formalized too rigorously they become more manipulable: a clearly specified definition becomes a focal point for competition instead of a unifying principle. 2021
As an organization loses touch with its transcendental values, members use the rules to jockey for position in the hierarchy and corruption erodes the organization's effectiveness. 2021
Governance by fungible tokens lets whales control a fundraiser DAO, which is antithetical to decentralized governance, and selling purchasable voting power via fungible tokens creates the risk of hostile takeover or looting. 2022
If the DAO governing a fair launch is controlled by a handful of people in a foundation setting, decentralized governance metrics are less likely to take hold and the public is correspondingly less likely to benefit from decentralized community governance over the launch. 2022
Strict privacy and transparency regulation produces a perverse result: because only large technology companies hold the data resources and infrastructure needed to comply and still build effective AI, such regulation consolidates rather than disperses their power. 2024
Although the move toward more explainable, private, and transparent AI is desirable, Kaal argues these regulations paradoxically consolidate power within large technology companies, because only they hold the data resources and infrastructure needed to comply and still ship effective AI. 2024
Distributing governance across all participants prevents any single entity from dominating decision making, and because model or training changes then require consensus, the resulting decisions reflect collective rather than individual interest. 2024
The absence of an efficient marketplace lets big dollar donors hijack the priorities of impact intermediaries such as foundations, donor advised funds, NGOs and fiscal sponsors, producing a feast or famine pattern for fundable projects. 2024
Proposals for AI self monitoring rely on unspecified security measures and therefore overlook the risk that adaptive AI agents collude or evade oversight, a risk amplified by pervasive deployment. 2025
Capturing only 5 to 10 percent of yield-driven capital flows through voucher reward merchant ecosystems would make LER a significant player in the market. 2025
Private codifications such as the Uniform Commercial Code and INCOTERMS remain static texts that can be amended only through protracted, committee-driven processes, and those processes inevitably favor incumbents and territorial interests. 2025
The on-chain reputation score becomes a universal, jurisdiction-neutral credential for digital-law expertise, analogous to a dynamically updated h-index for legal scholarship but cryptographically verifiable and immune to institutional capture. 2025
Existing rulemaking bodies are financially compromised at the source: legislatures depend on taxation or political patronage, and private standard-setting bodies depend on dues, sponsorships or foundation grants that create capture risks. 2025
The deterministic execution of smart contracts rigidly enforces coded terms and thereby incentivizes participants to exploit loopholes for immediate gain, because no mechanism exists to adapt the rules contextually. 2025
Persistent differences between jurisdictions that favor a permissive, innovation driven approach and those that prioritize strict control and consumer protection can produce regulatory arbitrage or uncertainty in cross-border situations. 2025
An agent sophisticated enough to satisfy the letter of a constraint while violating its spirit is an agent whose alignment is illusory. 2026
Institutional alignment resists gaming because the mechanisms that produce alignment are identical to the mechanisms that produce economic success: an agent cannot game its way to high reputation without actually performing competently and honestly. 2026
No static citation protocol can eliminate all arbitrage opportunities for sufficiently patient and powerful actors, a conclusion the author draws from Arrow's Impossibility Theorem, the Folk Theorems of repeated games, and incomplete contract theory. 2026
An evolutionary approach to citation standards is essential because the precise parameters of citation accuracy cannot be specified ex ante: what counts as adequate citation varies across expertise domains, evolves as domain knowledge accumulates, and must adapt as agents develop novel gaming strategies. 2026
Academic citation networks do attribute foundational contributions, but they depend on centralized institutional contexts with stable identities and long horizons, and they suffer citation gaming, prestige bias, and poor real time quality assessment. 2026
Validators on the cross-surface reflection surface must hold non-trivial reputation in at least three of the prior five surfaces, so that they have first-hand cross-surface experience and cannot be captured by any single-surface specialization. 2026
Statutory DAO infrastructure has been promulgated faster than DAOs have adopted it, suggesting regulators have built infrastructure for which there is limited demand at current pricing. 2026
Market discipline alone will not produce balanced institutional development, because it under-invests in the invisible institutional infrastructure that is most predictive of long-run resilience. 2026
The Folk-Theoretic prediction that any static rule set will be gamed by patient strategic actors applies to regulatory rule sets as much as to DAO rule sets, so dynamic-regulation principles are particularly applicable to the DAO sector. 2026