The investment industry is calling for more transparency from regulators. That’s a great idea, but it should run in both directions: the industry also should be more forthcoming.
Regulatory policy-making efforts often are their own form of kabuki theatre. Regulators identify a problem, propose a solution and give vague assurances that the benefits will outweigh the costs. The industry often asserts that the costs will be far greater than regulators suppose, and the benefits much less. There is little hard data for either claim.
In the past, regulators have made attempts to produce rigorous cost/benefit analyses of their proposals. But these typically were not particularly accurate – or very credible. The industry now seems to have accepted that demands for strict cost/benefit analyses of regulatory proposals just are not feasible. Regulators don’t have the resources to do this work.
And even when they do try to carry out a rigorous analysis, it doesn’t necessarily expedite policy-making. For instance, when the Canadian Securities Administrators commissioned Professor Douglas Cumming to study the impact of mutual fund fees on sales and performance, the industry initially refused to co-operate. Then, when the research produced results the industry didn’t like, some members responded with more ill-informed debate. The Investment Industry Association of Canada (IIAC) called on regulators to be more forthright when making policy. The IIAC acknowledges that regulators are unlikely to engage in strict cost/benefit calculations for every proposal. But the IIAC would like more insight into the factors regulators consider.
This seems reasonable; more clarity and honest communication from regulators would be welcome. And, at the same time, the industry should be more willing to “open the kimono” to encourage industry participation in these debates. Vague, unsubstantiated claims from the industry about the projected impact of regulatory proposals are just as unhelpful as ambiguous regulatory justifications. More candour from both sides would make these sorts of debates more useful – and the resulting policies more effective.
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