Is there too much regulation?

Analysts suggest that regulation is a burden, but do those who are bound by it agree?

By David Neal, 7 Sep 2009 at 10:41

Regulation is not designed to get in the way of doing business.

Quite the opposite, it is designed to streamline business processes and make sure that firms are doing all that they can to stay within recommended business practices.

Why is it then that regulations are so often accused of causing confusion and leaving firms bogged down in checklists and reports when they should really be focusing on other things - like the actual business of doing business?

The most common regulations that firms must comply with are the financial, green, and people ones and quite often the same names are bandied about when people start to speak of them.

These include the WEEE directive, and its aims to save the planet while making enterprises more globally responsible, as well as the Data Protection and health and safety rules which are designed to protect both the individual and their identity - not to mention the myriad of financial reporting and money laundering rules hitting the financial services.

What to expect when

A quick glance at some of the government's business-serving web portals shows that regulations come in throughout the year and at various times.

In the coming months, firms can expect changes to the national minimum wage and redundancy provision as well as new rules on the use of hair dyes.

Another suggests forthcoming changes to email systems, as from October this year all companies will have to include their name in all forms of business documentation, including electronic documents.

Another forthcoming rule dictates that when an individual requests data from a firm that data must be provided in the form that was requested. So if an electronic copy is requested that must be provided, even if the original material is a hard copy.

Can IT handle the rush?

Already analysts at Gartner are suggesting that most IT organisations are unprepared for the swell of regulations that they face and are warning them to get ready for a huge swell of new rules designed to protect the consumer from technological catastrophes.

"Three years ago, Gartner published research predicting that either catastrophe from IT failure, or a continuing history of lower-level failures would provoke either a governmental regulation or industry self-regulation of IT products and services in the US by 2015 and in the European Union by 2015 to 2018," said Richard Hunter, vice president and distinguished analyst at Gartner.

"Although the exact date of arrival for regulation is difficult to predict, we believe that, in recent months, the tempo and intensity of the indications of such an event have increased," he said.

"As a result of the economic crisis, the social environment is considerably less trusting and secure," Hunter added. "The public is wary of cascading risks and would seem to be supportive of legislation and litigation aimed at reducing those risks, including those posed by IT."

Regulation can be good or bad

Clive Longbottom, service director for business process analysis at Quocirca, said that firms could see increased regulation both as a good and a bad thing, but added that adherence generally ensured good business practice.

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3 comments

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Too Much Regulation?

I don't think so. Regardless of the industry, Banking and the Telecoms industry being another example, All companies subject first to law and then to regulation, seek to find ways to exploit customer. Exploiting customers, often enters the realms of unethical, immoral, outdated and anti-competative business practices using any and all means to ties customers into exorbitant contracts with rediculous penalties and making it nearly impossible to get out of such arrangements without a practically bankrupting the customer. I think there is too little Regulation and that Regulation is too loosely controlled. Imagine if you will telling a child that they cannot have sweets or biscuits in a jar but not making it inaccessible or monitoring that child. How many children would for their own self interests ignore the parent and help themselves anyway? The only way to prevent companies from abusing a flawed system is to reinvent the system in a manner that make the system impossible to abuse, or so costly to abuse that to abuse it is unthinkable. The simplest way would be to rely not on self regulation or on less than effective regulators or regulatory bodies with conflicts of interest, but to rely on law and effective authority to police that law. An effective law must be all-encompassing. Current legislation says "You can do almost anything you want but certain things must either not be done or must be done in a certain way" Allowing anyone to come up with schemes to bypass shortcomings and loopholes in complicated laws. New legislation must completely superseed old legislations for businesses and must operate in the manner "It is illegal to perform any action in the name of business, that is not explicitly defined and described in the following laws." and subsequently must describe for each type of business exactly how that business may operate. For example Contracts for different types of situations may be predefined in law along with acceptable terms or permutations of terms. Similarly charges, rates and penalities may similarly be defined. In this way businesses must operate in a fair and ethical manner, customers would have little grounds to cry foul over for example a fee or a penalty that is reasonable. Today this is not the case where costs for example of Banking penalties for example for going overdrawn are grossly excessive and not realistic - a £35 fee for such a situation might be considered reasonable in 1970 when most business practices were done by hand, yet today a bank with 1,000,000 customers and for example 10,000 customers with penalties might involve a few consultants running a program on a computer to generate 10,000 letters with a negligible cost of less than 10% of todays penalties. OR A Credit Card has an a minimum monthly repayment which is less than the cost of the interest rate, resulting in a debt which might never gets payed off.

By Hitman101 on Tuesday Sep 8

The right type of regulation.

Regulation needs to focus on markets not companies. It needs to keep companies relatively small and de-coupled from each other in risk terms. Micro-managing companies is precisely the wrong approach because it stifles innovation and has unintended and usually bad consequences. Hitman101 supposes regulators and lawmakers are "parents" and business people are "children". This simply does not work because companies will always be able to recruit any civil servant or regulator that shows any sign of intelligence. Micromanaging regulation tends to favour larger companies over smaller ones because they are better placed to influence the regulators and the governments. Thus it undermines itself by driving companies larger and larger until they grow so large they cannot be effectively regulated. In the light of this, of course large companies like regulation and people within large companies like it too because it is a "get out of jail free card" - you cannot touch me, I followed all the rules and ticked all the boxes, so if something ban happened it is not my fault, it must be the rules that are wrong. We need to get back to holding people responsible for outcomes rather than for process.

By JohnHind on Tuesday Sep 15

Flawed Analysis

You examine regulation from the wrong perspective. Ask this question: who pays for it? The Government? No. The industry? No. The consumer? Got it. The imposition of regulation carries costs, but injects no extra cash. Obviously these costs ripple through to the consumer. They are often unreasonably high, since the state will impose a bureaucratic model of regulation rather than a functional one. The only remaining question is, does the consumer get anything for the regulatory tax they now pay? Is there any value in it? Too often the answer is no. Much regulation is designed to protect consumers from their own fecklessness - and most are probably happy to pay these costs as a sort of insurance policy and in recognition that some consumers are genuinely 'vulnerable'. In far too many cases, however, regulation adds nothing of any benefit to anyone, even the exchequer: all the additional costs do is provide employment and index-linked pensions for another group of civil servants. One could wish regulation were subject to some obvious tests: is it necessary to address some actual problem, proportionate in cost to the cost of that problem, reasonable in whom the burden of the cost falls on, likely to be effective in mitigating the problem. In my view about 95% of regulation fails one or more of those tests.

By Ashley on Tuesday Oct 6