My day job involves regulatory reporting of OTC and ETD products, although I deal with the technical aspects not the business side so my comments contain some speculation (but the other responses to your question here seem better at that addressing those aspects).
A number of new regulations have come into place in the past few years to help prevent recurrences of recent financial scandals and meltdowns, and to ultimately bring stability to the markets, e.g. the Dodd-Frank Act (DFA) for US parties and MiFID/EMIR (and in the future MiFIR) for EU parties.
These regulations provide for e.g. daily and in some cases semi-realtime (30min) reporting of trading activities. Reports can also go to the counterparties who can dispute or verify trading activities.
Other countries, e.g. Russia, Singapore, Hong Kong, even South Africa are enacting similar pieces of legislation.
In some cases, the trade repositories (companies who accept trade reports) satisfy multiple supervisory bodies e.g. the DTCC will accept reporting under DFA, EMIR, MAS (Singapore), HKMA (Hong Kong) legislation.
Here is the speculative part: You can imagine this gives authorities a pretty good idea of who is trading what, what their exposure is and to who, etc. Because all parties are required to be registered with the appropriate regulatory bodies, I would think the alleged fraud at MtGox would have at least two obvious problems if they were subject to similar regulatory oversight:
(1) MtGox would be registered as brokers and wouldn't be trading parties, so at minimum it'd be very suspicious (and more likely illegal) to see them taking the other side of a trade (they couldn't report using a non-existent party for their side of the trade like they do here as that submission would be rejected since the party would be invalid, and they can't just not report because the counterparty buying the BTC will identify MtGox as the seller in its submissions; they also can't use a random real counterparty because that real party will dispute the trade took place)
(2) even if they legitimately took the other side of the trade (e.g. Mark registers as a trader) while cooking the books, I'd imagine they'd have to reconcile their audited books/bank accounts with their reported trading history, which would reveal fraud (by controlling the trading history they can claim anything; with a regulator, they can't control the trading history).
In effect, regulation of this sort would force all trading claims to balance out across all parties - where they don't, there would be an investigation.
Eh. The regulations are improved but when this happens:
http://www.ft.com/cms/s/0/08cafa70-e24f-11e3-a829-00144feabd...
"The UK’s Financial Conduct Authority fined the British bank £26m on Friday and reprimanded it for nine years of lax controls for its failure to rein in an options trader who in 2012 drove the gold price lower to avoid paying £2.3m to one of the lender’s clients."
They were caught once in 2012, but its pretty clear the fact it took two years to catch them at it means they probably got away with it for as long as Mt Gox did, given the environment that enabled it lasted 9 years.
That doesn't count LIBOR, etc. When the incentives to break the system exist, it will get broken from time to time even with regulation. Regulation just reduces the frequency and generally requires multiple bad actors to truly manipulate the entire system.
And when 'breaking the system', basically gets you fined [not put in jail for 5+ years], you can generally calculate the degree of risk you are taking and effectively have a chance of just breaking even if you get caught...:/
Mt. Gox wouldn't happen, but the type of people that ran it would have found a different way to 'cheat'.
Libor is an example of lack of regulation, though. There was no oversight involved; some dude at Reuters called up some handfuls of banks and then averaged out the responses, and it was self-regulated via an industry group.
Regulations are about shifting incentives and in the case of Libor the banks involved were both investment and commercial banks and thus had enormous temptation.
Anyhow, you can't eliminate bad actors and thus reducing their frequency and intensity is the whole point. These crises have negative costs to everyone, and for most of these the inefficiency cost of regulations is utterly dwarfed by the cost of big crises.
Won't argue against how much easier the justice system is on you if you're rich.
A number of new regulations have come into place in the past few years to help prevent recurrences of recent financial scandals and meltdowns, and to ultimately bring stability to the markets, e.g. the Dodd-Frank Act (DFA) for US parties and MiFID/EMIR (and in the future MiFIR) for EU parties.
These regulations provide for e.g. daily and in some cases semi-realtime (30min) reporting of trading activities. Reports can also go to the counterparties who can dispute or verify trading activities.
Other countries, e.g. Russia, Singapore, Hong Kong, even South Africa are enacting similar pieces of legislation.
In some cases, the trade repositories (companies who accept trade reports) satisfy multiple supervisory bodies e.g. the DTCC will accept reporting under DFA, EMIR, MAS (Singapore), HKMA (Hong Kong) legislation.
Here is the speculative part: You can imagine this gives authorities a pretty good idea of who is trading what, what their exposure is and to who, etc. Because all parties are required to be registered with the appropriate regulatory bodies, I would think the alleged fraud at MtGox would have at least two obvious problems if they were subject to similar regulatory oversight:
(1) MtGox would be registered as brokers and wouldn't be trading parties, so at minimum it'd be very suspicious (and more likely illegal) to see them taking the other side of a trade (they couldn't report using a non-existent party for their side of the trade like they do here as that submission would be rejected since the party would be invalid, and they can't just not report because the counterparty buying the BTC will identify MtGox as the seller in its submissions; they also can't use a random real counterparty because that real party will dispute the trade took place)
(2) even if they legitimately took the other side of the trade (e.g. Mark registers as a trader) while cooking the books, I'd imagine they'd have to reconcile their audited books/bank accounts with their reported trading history, which would reveal fraud (by controlling the trading history they can claim anything; with a regulator, they can't control the trading history).
In effect, regulation of this sort would force all trading claims to balance out across all parties - where they don't, there would be an investigation.