Definition ∞ Policy arbitrage occurs when individuals or entities exploit differences in regulatory frameworks across various jurisdictions to gain an advantage or avoid compliance. This practice often involves relocating operations or structuring transactions to benefit from more favorable or less stringent rules. It highlights inconsistencies in global regulatory approaches, leading to uneven application of laws.
Context ∞ News frequently reports on policy arbitrage in the digital asset space, where firms may move to jurisdictions with lighter regulations to reduce operational costs or avoid strict oversight. This phenomenon presents a challenge for regulators aiming to create a level playing field and prevent regulatory races to the bottom. International cooperation is often proposed as a solution to mitigate its effects and foster consistent global standards.
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