The actual and potential use of unregulated financial instituitons for transnational crime
The problems of hedge funds, mortgage brokers, and finance companies have several common themes. First a lack of prudential supervision; second, an ability to abort anti money-laundering legislation using cross-border transactions; third, a common escape clause of “natural market forces” being used by regulators; and fourth, benefits accruing to the originators. In view of the potential of these types of non-bank financial institutions (NBFI’s) to generate systemic crisis by avoiding the new Operating Risk requirements of Basel II, the effectiveness of the new capital adequacy regime is now highly questionable. Unregulated NBFIs by offering a regulatory black hole, appear to have become the home of the new transnational criminal.