Government Regulation vs. Self-Regulation in Handling Private Sector Operations: A Critical Analysis
Government regulation versus self-regulation in private sectors is debated. "Big business" argues for self-regulation, citing expertise. Some sectors require government oversight to prevent widespread impact, as seen in the 2007/2008 global financial crisis.
Often, government regulation of private sector operations is viewed as an intrusion, amidst the alternative argument that self regulation will suffice.
This contention is frequently asserted by “big business” who claim that they have acquired the necessary skills, experience and expertise in the particular sector and, therefore, can assure the public that they are best placed to set standards and police their own.
In some cases, this assertion is true, as the group seeks to vigorously protect its image and, as such, work aggressively to kick out bad actors.
Here at home, the Institute of Chartered Accountants of Barbados (ICAB), for example, has taken steps to inform citizens of its self regulation processes and encourages members of the public who have complaints about any ICAB member to alert the body to have them investigated and action taken.
The public has not been informed of any complaints or disciplinary action taken and so, we cannot offer an opinion on the efficacy of this group’s self regulation.
When it comes to attorneys-at-law and the process of self-regulation by the Bar Association, some may argue that the jury is still out.
Admittedly, in recent times, the number of disbarments from the profession has increased and sadly, there is a growing number of lawyers who have faced incarceration.
There are some sectors however, that require governmental regulation as the impact of a failure or bad action could have a devastating effect not only on those directly involved but a ripple effect across the society.
Multinational corporations are usually the most highly regulated because of their cross-border activities and so, a disaster in one geographical location would likely result in contagion.
The global financial crisis of 2007/2008, which started with the foibles of the United States housing bubble, quickly swept across the globe, engulfing economies such as Barbados’.
Failed regulation of the subprime market saw individual borrowers provided with loans so large that they were unlikely to be able to repay them. In addition, there was overstating of borrowers’ income and over-promising investors on the safety of mortgage-backed securities products they were being sold.
An even more stark and tragic case of laxed regulation which has had a direct impact on thousands of Barbadians was the collapse of the CL Financial Group in Trinidad and Tobago.
CL Financial was parent of the now defunct CLICO Holdings and its various financial services companies in Barbados and the Eastern Caribbean.
The sad tale of that group’s fall still lingers in the criminal courts, the civil courts and the Financial Services Commission (FSC), which is still processing lingering claims from the operation of CLICO Life Insurance Company that has since been liquidated.
Despite the love-hate relationship between regulators and the private sector, the importance and value of quality regulation by the state or third parties cannot be overstated.
The FSC’s decision to include the appointment of “independent directors” in its updated corporate governance guidelines for credit unions should be applauded.
Despite the suspicion and some resistance to the move, there is a general recognition that the presence of independent directors should serve to boost governance standards in these institutions.
The FSC’s director of supervision and regulation, Curtis Lowe, recently sought to offer some insight on the move and assure credit unionists that credit union principles are not being offended by the presence of independent directors on the boards.
As he outlined, the concept of independent directors is facilitated under the Cooperative Societies Act.
Lowe also points out: “The act requires that the President and the Secretary be elected officers. So even within the legislation there is provision for credit unions to appoint persons to their boards who are not elected and who can serve as independent directors once they meet the criteria.”
Two leaders in the sector – AffinityPlus Credit Union (formerly Barbados Workers’ Union Credit Union) and Barbados Public Workers Cooperative Credit Union, have already incorporated the concept of independent directors into their board structures.
The move by an increasing number of credit unions to swiftly comply with the FSC guidelines, demonstrates the value credit unions attach to ensuring they remain competitive, viable and resilient players in the local financial system, where ordinary Barbadians have placed more than $3 billion of their savings.
Credit unions remain a critical component of Barbados’ financial system and public confidence in their governance must be assured. The regulator, therefore, is a key anchor in that process.
