At the FSA’s annual Asset Management conference on 25th September, Oliver Lodge pressed US and EU regulators on their justification for imposing extra-territorial regulation. Oliver pointed out that the cost of this strategy was enormous while the benefits were very modest. He pressed them to comment on the implications of the possible spread of the habit and to consider the chaos caused if other countries such as Australia or Singapore took the self same approach. He pointed out that there was no equivalent measure for criminal law; the murder of a US citizen in London is dealt with by the UK authorities. What is the justification for extra-territoriality by financial services regulators?

Unsurprisingly, there were no good responses to the question. The SEC spokesman simply blamed the problem on Congress; the European spokesman said it was an essential aspect of the AIFMD investor protections function.

Given the inadequacy of these responses, Lodge spoke to both representatives in the conference sidelines and got some recognition of the impossible scenario that would result if the practice were to be imitated by others. There was no view on the cost of the requirements nor any rationale for financial services regulation taking a different approach from criminal law.

This is clearly an area where a non-proliferation treaty is needed. Those who have already transgressed should be taken to task at every opportunity so that any further attempts are shredded before they take root. The industry should not resign itself to unproductive, incompatible and expensive regulation for which no cost benefit analysis has ever been produced.