Regulated vs. unregulated investing: why “cheaper” solutions can be the most expensive

Investing in Slovakia moves between two poles, a regulated environment with supervision by the National Bank of Slovakia and unregulated structures that promise higher returns and lower costs. However, the difference between the two is not only about fees, but mainly about risk, legal certainty and investor protection. In the 36th episode of Highgate Talks, Peter Varga and Peter Stadler of Wealth Effect Management look at why regulation in investing is not a barrier, but a competitive advantage.

Regulation as a basis for safety, not bureaucracy

From a capital markets law perspective, regulation is not an end in itself. A licensed securities dealer (OCP) is subject to strict rules, from capital adequacy, to staffing, to IT security, to ongoing regulatory oversight. In practice, this means higher upfront and operational costs, but these translate into higher levels of client protection.

At Highgate Group, we are often faced with the argument that “an unregulated solution is cheaper” with clients. The problem is that cheaper is only cheaper until something goes wrong. At the point of failure of the project, the asset management or the entity itself, the investor will typically find that there is minimal or no legal protection.

Why unregulated projects attract, and where is the limit of risk

Unregulated investment structures often operate with a simple narrative: fewer rules = higher returns. However, practical experience shows that high promised returns are often a red flag. Past cases confirm that even sophisticated investors are not immune to a well-presented but legally weak project.

From a legal point of view, it is crucial that it exists in a regulated environment:

• oversight by an independent regulator,
• clearly defined responsibilities,
• processes to protect client assets.

All of this is generally absent in an unregulated environment, or based only on contractual promises.

Diversification, licensing and the long term

One of the important messages of the discussion was that even regulated investing does not mean “one-size-fits-all”. A properly set up portfolio combines:

• multiple licensed entities,
• different asset classes,
• long-term investment horizon.

Equally important is the tax dimension of investing. Timing tests, capital gains taxation or dealing with losses and exchange rate differences have a major impact on the investor’s real return. This is where the importance of linking an investment strategy with sound legal and tax advice becomes apparent. Despite the high tax rates in Slovakia, we are able to generate significant tax savings for our clients through a combination of the above and other tools.

Regulation as a competitive advantage

So the question is not whether regulated investing is more expensive. The real question is whether an investor can afford the risk of an unregulated environment.

In the long term, regulation increases confidence, stability and predictability, and these are the qualities that should underpin any serious investment.

You can watch the full Highgate Talks podcast on the topic of regulated and unregulated investing here:

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If you are interested in this topic, please do not hesitate to contact us:

• Peter Varga, e-mail: peter.varga@highgate.sk

Alternatively, you can address your specific questions in a consultation with our partner Peter Varga, who specialises in financial regulation and tax law. You can book a consultation here: