War and Peace is 1,200 pages long. Bleak House spreads to 1,000. Dodd-Frank, the US’s sprawling overhaul of financial regulations after 2008, runs to 848 pages – earning itself the nickname `Dodd-Frankenstein’. And the EU’s bumper trade deal with Canada reaches a hearty 1,600 pages. Last week, surmounting all of these achievements, the EU introduced a truly spectacular piece of regulation. `Mifid 2′ is its name and it weighs in at a princely 7,000 pages. That’s 1.4 million paragraphs, or six Bible-lengths. It must surely be a contender for the longest piece of red tape ever.
– Juliet Samuel (Daily Telegraph, registration required). Needless to say, people continue to drone on about “neo-liberalism” and “unfettered markets”. If only.
I can predict a standard retort: that if the UK wanted to be an enthusiastic EU member (no laughing at the back, kids) then it could influence the EU machine and reduce this regulation. But how has that worked out, really? True, I know of some politicians who have tried to slow this process down, but it continues regardless.
Sure, when the UK leaves, then UK-based firms that wish to do business with the EU will need to comply with EU regulations just as they must do so with the laws of the US, or Canada, Australia, or Planet Zog. But the process cuts two ways. If the UK parliament has any sense (big if, course) and keeps rules within bounds rather than “gold-plates” whatever is in force in other countries, then the UK will gain. Further, the very existence of countries with independent rule-making makes it harder for policymakers in transnational groupings such as the EU to create tax/regulatory cartels. (This is why countries such as Switzerland drive Brussels nuts.)
In time, the regulatory costs of doing business in the EU will cripple its financial markets, and that makes it rather harder to persuade yours truly that being outside this regulatory behemoth is so bad for business. Being outside a relatively free and flexible customs union, which is what the Single Market is, can sound risky, even daunting. Being outside an expensive, inflexible, bureaucratic nightmare is far less so. In fact, getting as far away as possible from such a structure is not just a smart gamble, but essential.
I’m a lawyer by trade, and I got pretty good grades at a pretty good school.
I’m at a loss to imagine any legislative enactment that it would take 7000 words to write down.
The whole CFR is only 70,000 pages!
On the plus side, with laws like this large parts of them can be ignored because no one knows about huge swathes of it. There’ll be a defacto procedure for compliance which ignores huge parts of the law.
So for example, manufacturers will indeed have to paint their products blue and ensure they have no corners, but will not have to ensure it plays Yankee Doodle Dandy when squeezed, weighs exact 738g and is made from recycled tampons. 😉
There is an upper limit to how much regulation a system can sustain. Once it gets beyond that level, people start ignoring most or all of the law. See also: France’s attitude to every EU law it has ratified.
On the plus side, with laws like this large parts of them can be ignored because no one knows about huge swathes of it. There’ll be a defacto procedure for compliance which ignores huge parts of the law.
I work in the wealth management sector, and I can tell you that while there is likely to be a bit of “turning a blind eye” to failure to comply in the early weeks and months, I am less confident further out. And then we have the joys of the new European data protection laws, due to hit in mid-May.
That’s because you’re British Jonathan. Only us Brits are so stupid as to actually try and apply EU laws. All the other nations nod, smile, sign the document, take the money and then act like nothing happened.
Strange that the 3000 pages of Obamacare do not deserve even a passing mention; especially since Obamacare enabled regulators to write as many additional pages of regulations as they felt were needed.
JadedLibertarian: when i think of the trade-off between amount of laws+regulations, and compliance with them, the first country that comes to mind is not France but Italy.
OTOH if i were to be asked about a country that combines a high burden of taxation+regulation with strict compliance, the first answer that comes to mind is Germany. However, i know Italy much better than i know Germany, having worked in the latter country for a total of only 6 days (not counting the few occasions that i visited Germany to attend a conference and visit research labs).
It’s not true. If you check the number of pages on EUR-LEX, the European law database, it’s perhaps 50 pages.
I am so sorry you can’t have a decent political conversation on hot topics with almost everyone ..
Your point is excellent We have too much reglementation, specially in financial market. The best monetary and banking system is none, just common law.
But how can you convince a layman or a specialist, when you write silly statements
Yes, the GDPR looks like a huge level of unpreparedness everywhere. It’s all just too complicated and open to interpretation.
Trump’s policy of removing 2 regulations for every 1 new one (ignoring the fact that regulations can’t really be counted this way) is genius in its simplicity and obviousness.
Phillippe, it would have been nice for you to include a link to the page you cited, because I think your comment is almost certainly wrong. I have no familiarity with EUR-LEX, but a quick review indicates to me that there are dozens, if not hundreds, of sections which are part of MIFID II, and they clearly total substantially more than 50 pages.
JadedLibertarian, you are undoubtedly correct that most sections will be ignored. But the problem is that there is always the fear of selective enforcement. Regulatory retribution can be brutal, and if your institution finds itself on the wrong side of some regulator it can be a nightmare to get yourself back into their good graces.
This conversation put me in mind of an Ayn Rand quote. I find her writing very hit and miss, but there can be no denying she wrote her villains very well indeed.
Mr Hermkens, provide a source or link to back up your assertion. It’s almost certainly wrong. I cover the European wealth management industry as part of my job and I can tell you that these rules run to thousands of pages. It has added billions of costs to firms. 50 pages?!you mean a small booklet like the UK Highway Code? 🤔
If your system is similar to the USA system, it almost sounds as if someone is confusing the enabling legislation with the resulting administrative regulations.
The former can be as simple as legislation that simply directs agencies to make all necessary rules and regs to administer everything under its purview. The latter is what runs to many thousands of pages.
JadedLibertarian: “This conversation put me in mind of an Ayn Rand quote.”
You beat me to it.
The whole point of having so much law is that, while much of it is indeed ignored for much of the time, there are sufficient obscure points and clauses that can be dug up when necessary to squash someone who is making a nuisance of themselves to the ruling clique. The recent targeting by the Inland Revenue of donors to the various Leave campaigns with a deeply obscure, barely-heard-of facet of inheritance tax regulations is an obvious case in point. (Yes, one lone Remain donor is caught up in it too … but sometimes they have to throw one of their own to the wolves to muddy the waters and make it a bit less obvious.)
Doesn’t it all rather depend on how big the pages are and how small the text is?
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I’ll get me coat…
The point of the EEC-EU is, and has always been (right since 1957) two fold – to take more and more powers to itself from nations (and once taken no major power may ever be returned – that is a central principle of “The Project”), and to plan society in ways that the intellecutal elite (for example Germans in the tradition of the “Cameralists” of past centuries – and those French thinkers who are in the tradition of Colbert) want.
Some British politicians and other such deny all of the above – I used to believe such British people were honestly mistaken, now I believe they are lying filth. I have grown less tolerant, more embittered, with age – but I am also correct about them, they are lying filth.
Paul:
I do not think all politicians are lying filth. Some of them are genuinely stupid.
Complicated laws are intrinsically unjust because no-one understands them. The wealthy can afford representation that understands the law well enough to get them out of trouble. Everyone else is stuck in a Kafkaesque nightmare where they don’t know what they’ve been accused of, and no one can tell them because they don’t know either.
My PhD thesis was 218 double-sided double-spaced A4 pages long. It was probably a tad short for a PhD, about 58,000 words. I understood all of it, very briefly. On the day of my viva voce exam I could have discussed every line of it with you. But very quickly it has evaporated from my brain and been replaced with more useful stuff. I can still discuss it, but now what I largely remember is everything that is wrong with it.
My PhD cited around 80 references, both papers and books, again quite a small number for a PhD. They probably ran to maybe 5,000 pages of reading. Wrapping my brain around all of this took 4 years of my life, and had a devastating impact on my health. Smarter men than I could have handled some more reading but probably not a lot more.
The law referred to in the OP is several orders of magnitude more complicated than my PhD, than any PhD. No one human being could possibly understand the whole thing. In all probability, no one human being could even read the damn thing in its entirety without going mad. So you have to ask the question, why did they make it? Laws are not computer programs – you cannot automate their utilisation (well except in banking transactions maybe). They have to be applied by humans, and humans cannot possibly enact this law.
It would be like a company manufacturing an automobile that requires 8 legs, 16 eyes and 4 arms to be able to operate effectively. Since a creature capable of operating such a machine does not exist, one would be forced to conclude that no one seriously expected the machine to be used. And that would beg the question why.
Why had the EU written a law that cannot by definition be utilised?
This discussion would be improved with a brief description of what MIFID II is. The long form is “Markets In Financial Instruments Directive II” and it’s a directive on how to handle the trading of assets, stocks, bonds, options, commodities, etc.
While these are not banking transactions usually, they are their close cousin.
A bigger problem is that apparently, they break interoperability with other areas’ trading regimes as MIFID II violates their privacy laws.
https://www.cnbc.com/2017/12/15/mifid-2-all-you-need-to-know.html
Personally, I think Mifid2 is great – provided we ditch it immediately we’re out of the EU. It is, after all, another in the long-running and successful regulatory attempt to keep the EU the slowest-growing part of the world economy.
In this case, the aim is – I take it – to shore up the financial monopolies and oligopolies which – again, one must assume – the regulators ultimately hope to end up being paid lavishly by. After all, the very obvious and very immediate impact of MIFID2 is to hobble any asset management firm or research firm to ensure that they no longer provide pesky competition for the Big Boys.
How any government or bureaucracy, or even just plain nutter, thought it was a good idea to hand Goldman, Morgan, etc etc yet more barriers to entry is quite beyond me.
That made me chuckle, though I think you may have company in the Germans.
“…it [the UK] could influence the EU machine and reduce this regulation…”
How?
It’s exactly because we’ve been trying to influence and reform the EU for 40 years without even the slightest success, that we’ve finally decided to tell it to sling its hook.
John K – I was specifcially pointing at people who, for example, pretend that the “Single Market” is just about international trade. In 1986 this might have been honest ignorance (actually it often was honest ignorance) – but after more than 30 years of experience of what it actually means (European Union regulations controlling our INTERNAL affairs) no one can honestly hold such an opinon.
People who, in 2018, still pretend that the European Union is just about international trade are indeed lying filth – I stand by my description of them.
As for people who think the E.U. can be “reformed from within” – it looks like the new young Chancellor of Austria is the latest person to have to learn, the hard way, that it CAN NOT be reformed in the sense of its powers rolled back.
Hello all,
I am an avid reader of Samizdata and have pestered the editors into letting me post something maybe two or three times in the past five years. But this is certainly my least favourite post and thread in my time frequenting the blog, because while it is sound in spirit (long, confusing regulations, booooo!) it is woefully lacking in understanding of the material it is criticising. Only one person has waded into what MiFID 2 actually is, which was helpful, but led to no commentary.
So as not to break my firm’s Internet commenting policy, let’s just say this directly affects my day to day work and leave the relevance of my personal background at that. I work on a team that makes investment decisions for our clients’ portfolios and I regularly interact with what is known as ‘the sell side’, which for all intents and purposes means ‘investment banks’. The stated purpose of MiFID 2 is to separate the concepts of ‘research’ and ‘execution’. This means forcing total transparency between what my firm pays investment banks for research into companies whose investment banking they have managed, and what we pay them to make markets in trades we desire to make. The point of separating these two is that leaving them unseparated is begging for fraud and corruption to take place.
I would like readers to take my own experience deadly seriously when I report that the actions of investment banks are the most fraudulent and corrupt I have ever witnessed or even heard of in any detail. I have been consistently uncomfortable with every professional interaction I have ever had with an employee of an investment bank in my job, and I have complained about this and been told that ‘that’s just how it is’. That it shouldn’t be that way seems irrelevant to most, because it just is that way. And in a perfect perversion of how things should be, more senior people than myself at my firm to a certain extent have to play this game because if we don’t stay on good terms with the thoroughly fraudulent and corrupt investment banks then we won’t get good execution and we won’t get good research and our clients will suffer. The only pacifist in a street fight immediately gets killed.
MiFID 2 has been a massive pain in the ass for our firm to get used to, but frankly I don’t care, because everything I have been saying I am uncomfortable with and don’t want to do because it is clearly corrupt and has the potential to implicate me and my company will now no longer happen. Now you might say, but it’s a free market! if corruption hurt people then the firms that didn’t do it would succeed! I have two responses. Firstly, don’t even try to out-libertarian me. Just don’t. Secondly, more seriously, the people hurt are not part of this market – they are the ones whose money is being managed. Investment banks run a massive circle jerk of money skimming in totally opaque markets that their regulatory capture ensures will likely stay that way forever. If we take part, our clients lose. If we don’t take part, our clients lose by even more. Fucking great.
The vast majority of the regulatory burden of MiFID 2 will be borne by the investment banks. They will make less money. Boo fucking hoo. That means they will have less time to call me at my desk and try to cut me in on a bribe that will fuck my own clients. This is not a bad thing.
Not to leave an opening to be out-libertarianed, I will conclude with a higher level view, and a source of optimism. This has happened in the first place, as briefly alluded to, because of excessive regulation on financial markets that erects insurmountable barriers to entry to innovators and keeps them effectively under the control of the banks. This is not a market failure, it is a blatant government failure. These people have a business whose source of revenue is fraud and the government isn’t doing anything about it because they are the government. 7,000 pages from a transnationalist super-regulator may not be the best way to deal with this, but it is a way.
The good news is there is a better way. It’s called blockchain and it will solve every problem in the world (see, I’m also a techno-libertarian)
But seriously, it will at the very least solve this problem, since this problem only exists because of totally opaque, private markets with no central record, no transparency on trades, fees, prices, etc. – basically, not a real market in which it makes sense to say there is or ever was a ‘market failure’, but which is kept that way because prior to blockchain, even this shit show was considered preferable to trying to commoditise trust. (that statement is obviously nonsensical, since before blockchain nobody ever said ‘commoditise trust’, but you get the point)
I am looking forward to blockchain, but in the mean time I will very happily take MiFID 2.