The importance of regulations

About two weeks ago someone referred to me as the marketing manager for OLINT. Around the same time a friend called me to ask if I was the owner of Cashplus, as that is what they were told. In the latter case I don’t even know who the principals are, but as usual Jamaicans care little for fact in many instances and more for sensationalism, so that whenever something is said they would rather hold onto it if it encourages gossip.

These comments no doubt originated because I have been calling for the regulation of these entities and some persons have seen this as a push for legitimization. Never mind the fact that Brian Wynter also called for the regulation of these entities, else they will fail, but I am not aware of anyone saying that he is the marketing manager. I don’t share the opinion that they will fail because they are not regulated, but regulation is important to reduce the risk to the investing public.

Need for regulations
The comments on my position are unfortunate as it illustrates the inability to see beyond the emotions of our own positions. The fact is that it shows how easily we forget the past and is a concern that we do not learn. In the 1990s, because of the lack of a proper regulatory environment, we suffered probably the greatest setback to our economy ever – FINSAC. My argument for regulation of these entities is therefore because if anyone of these entities were to fail it would have a contagious effect, greater than malaria, throughout the financial sector and would negatively affect the confidence contributing to the current growth trend. It is therefore within the interest of the players within the financial sector to regulate these entities rather than continuously debate whether they are legitimate or not. I cannot understand the short sighted approach of some of our more sophisticated thinkers.

I am happy to see that Brian Wynter was reported as calling for these entities to be regulated, and is indicative of the positive influence that the FSC has had on monitoring our financial sector. We cannot like regulation when it suits us but disagree with it when it does not.

No one can argue with the fact that the financial market in the US is probably the most developed. Additionally it is through the development of financial markets that other sectors are able to expand as it creates capital for businesses. Capital markets are not developed by shutting out new ideas but by bringing them under regulation and ensuring that they complement the existing financial structure.

This is the importance of regulations. If we do not abide by regulations then we have nothing but chaos leading to failure. If we do not have laws to regulate our daily lives and commercial transactions then we cannot have progress; we will not have investments; and more importantly there will be no justice and crime will increase. Similarly within markets and companies, if we do not have regulations then we will not have predictability; we will not have protection for investors, employers and employees. In short we would have a free for all system where investors and employees are taken advantage of, vigilante justice will prevail, and there will be no development.

This of course brings to mind the use of monies for purposes other than originally intended, and I speak specifically to the use of the National Insurance Fund and the Capital Development Fund (CDF). When we communicate to the public, or participants in any fund, that the funds will be used for a specific purpose, we establish a trust relationship. When we betray that trust by using the funds for other purposes then we create animosity.

Use of funds
In addition there is a reason for rules being established around the use of funds. When the rules were originally established it would be because it is on this basis that the funds could be raised and the uses would have been thought to be for maximum benefit. This is no different from the use of money in private pension funds that the government will correctly strictly regulate. The change in the use of the monies from these funds therefore fly in the face of the regulatory environment that the government is trying to strengthen, and doing a good job at. If the government is going to lead in this area, however, it is very important to do so by example.

There is no need for another bureaucratic body to be established to monitor the CDF, as recommended by the Opposition Leader, as we already have enough rules to govern this fund. There must be documentation surrounding the objectives of the fund; there are the rules of fund accounting, which governments should adhere to; and there should also be greater parliamentary oversight, which is what they are paid to do. What we must do is enforce the rules.

This lack of the enforcement of regulations results in a lack of structure and prohibits growth. Nowhere is this more obvious than in a company, where this can be seen more readily. If one looks at large multinational companies there is a common thread; they all have standard rules to govern every policy. So the determination as to disciplinary matters, reporting, charitable contributions, expense accounts etc. are all guided by standard rules. If this was not so then there would be no controlled expansion and where growth is not controlled then it is difficult to know when any part of that company is in trouble; in other words it takes away the predictability and control. This is one of the reasons why I always say to small business owners that it is very important to report your correct profits and pay the right taxes. If you setup your accounts to be unstructured to make it difficult for the tax man you also make it easy for the person wanting to commit fraud and will prevent expansion and early retirement.

What happens also is that human resources become unmanageable, costs are not controllable, and productivity inevitably declines. The company then finds itself unable to compete effectively as they do not have enough control to adapt quickly to changes. No where is this more true than in the military. The rigid discipline enforced in the army is necessary as any weakness in the field could contribute to a defeat and the substantial loss of lives, and maybe the fall of a government. It is important that when the General gives the command that it is not only communicated effectively but also that the command is followed without question. That way the only risk is that the wrong command is given but there is no confusion as to what is to be done.

There is no doubt that regulations are very important and we must try to regulate all the areas that provide risk to the public. If we do not do so then we are being irresponsible in our approach to managing the economy. It is not enough to say that there is justification for bending the rules, as there will always be justifiable reasons for flouting the rules depending on who has the power to do so at the time. Today we may find ourselves in the position of benefiting from the compromise of rules and tomorrow we can find ourselves on the other side. So it is very important that we develop a culture of strictly applying rules and order.