If restaurants were regulated like fund management companies, they would prioritise food safety over flavour, resulting in bland dishes. Diners, however, would take food safety for granted, offer little reward for these efforts, and opt to cook at home instead.
In their quest for flavour, diners would flock to supermarkets to stock up on salt, MSG, and spices, returning home to create mouthwatering meals. While some might suffer a minor stomach ache, the majority would be perfectly fine.
Observing that diners are willing to accept some risk for more flavor, a new breed of restaurants would emerge, exploiting loopholes to operate outside the regulated industry. These establishments would serve up tantalising dishes that quickly win over diners.
Established restaurants, feeling the sting of lost business, would demand that regulators either update the rules or close the loopholes. In response, regulators might opt to close the loopholes, forcing bland food back onto menus everywhere.
But is banning these innovative restaurants truly in diners› best interest?
Probably not. By shutting down the new entrants, regulators would ignore what diners actually want, dictating what they can consume instead. A better approach would focus on making the flavourful food diners crave safer to enjoy. A few stomachaches shouldn’t kill an entire industry.
Returns are equivalent of flavour
In the investment world, returns are the equivalent of flavour. Investors are constantly searching for opportunities that offer enticing returns. When such opportunities are unavailable in the regulated market, some investors will seek them elsewhere, willing to stomach minor risks for the allure of higher rewards.
Let’s examine a few EU regulatory practices that can make investing bland:
Regulatory reporting
If restaurants were required to provide diners with detailed reports on their operations, costs would skyrocket with little added benefit for diners. Restaurants would become reporting specialists, losing focus on the dining experience.
In the financial world, Luxembourg—a major global financial hub—has more regulatory reporting experts than portfolio managers or fund sponsors. This highlights how excessive reporting requirements can stifle creativity and focus.
AI
Imagine a restaurant using AI to improve recipes or train staff, unlocking significant innovation and cost savings. In Europe, such a restaurant might be restricted to working only with «ethical» AI providers, potentially limiting its options and hindering progress.
Crypto
If a restaurant introduced a blockchain-based rewards scheme for diners, it would likely face regulatory hurdles under MiCA rules. This could mean conducting AML and KYC checks on customers, adding friction to what should be a seamless experience.
Balance between regulation and innovation
Regulations aren’t inherently negative—they often increase trust and economic activity. Investors are more likely to put their money into countries with strong regulatory frameworks than those with weaker ones.
However, there is a tipping point. Excessive regulations can stifle innovation and deter economic activity, particularly when they prevent investors from embracing new ideas and opportunities. At this point, regulations cease to serve their purpose and instead work against investor interests.
Investors take safety for granted. They love flavour, even if it comes with a small risk of discomfort.
Regulators should keep that in mind.
Gregory Kennedy is a columnist for Investment Officer Luxembourg. His columns appear every other week. He also works as a business development manager at Finsoft Luxembourg.
