Israel's Chambers of Commerce, treasury clash over capital market regulation
Chamber defends business, treasury says it is only defending the consumer.
Prime Minister Benjamin Netanyahu caused a stir a month ago by saying that every sector of the economy suffers from over-regulation, and last week Israel Securities Authority chairman Shmuel Hauser released a series of proposed measures to ease regulation. The Federation of Israeli Chambers of Commerce welcomed the recommendations, but suggested yet additional relief from regulation.
Chamber federation chairman Uriel Lynn sent a letter to Finance Minister Yuval Steinitz last week objecting to the regulatory approach taken by the ministry’s capital market and insurance division. While the ministry as a whole, Lynn wrote, is working to address the problem of over-regulation of the business sector, the capital market division is constantly creating new, disproportionate and unreasonable regulatory requirements.
“There is a need to reconsider and even freeze the entire mass of regulation that has already been passed, and set clear criteria for every additional regulation in the future,” Lynn wrote to Steinitz. He included data developed by the Chamber federation purporting to show that from the beginning of the year through the end of August, the Finance Ministry’s capital market and insurance division had issued 44 legislative amendments and other regulatory directives relating to companies managing provident funds alone, which were spelled out in 694 pages of text.
By comparison, for all of last year, the federation says, the division issued 43 regulatory directives or amendments that filled 528 pages; and between 2005 and this year, 2,278 pages of regulations have been issued for companies managing provident funds.
A senior treasury official said in response that the ministry is not on a campaign to ease regulation, but is constantly examining whether the regulations are necessary. “Everything we do is designed to protect the consumer. Where it’s possible to ease up, we are happy to,” the official added.
“Until a few years ago,” the official said, “the world of long-term savings and insurance was a very relaxed one. This relaxed world is changing. We expect that things will change at a certain pace while the companies hope they can do it at their own pace. No one is dragging his feet deliberately.”
No apologies from treasury
But the official also said he and his colleagues have no reason to apologize for their approach. “At the Federation of Chambers of Commerce, they speak from a specific stance and that’s a stance that they have to take for the sake of their clients. We have to see first and foremost to the needs of savers and the insured.”
According to Ronen Solomon, director of the finance and capital market sector at the federation, the effect of the regulatory burden is reflected in the decline in number of firms managing provident funds from 104 in 2005 to about 80 at the end of last month. And some of those still in business are about to shut down or merge, he added.
However, the senior treasury official countered that regulation is developed in response to need, due to wide-ranging changes in the sector. “As a matter of principle, you have to remember that in 2005 a large degree of authority was transferred to the capital market division from the banking division. It was necessary to fill a lot of holes in the regulations. It was not for nothing that 2005 was chosen by the Federation of Chambers of Commerce as the starting point in the study the chamber conducted. That was the year a new regime was created and it was necessary to fill in the gaps.”
In his letter, however, Lynn argued that the regulatory trend had “exceeded all reasonable bounds” and had forced “huge quantities of directives, regulations and rules” that were too much for the business sector to absorb. “It’s regulatory burden that causes capital market business entities to shut down their operations,” Lynn asserted.
As an example, he cited a capital market division draft circular on “agent and adviser customer service” in which it was proposed that license holders be required to respond to customer inquiries within two days, that meetings sought by customers be held within seven business days, and that documents also be provided to customers within seven days. Lynn sarcastically suggested that the Israeli economy would benefit if the civil service would adopt such standards.
Another criticism from the federation concerns the Finance Ministry capital market division’s demands for improved data collection and increased efforts to find the beneficiaries of inactive accounts. However, the Finance Ministry source who spoke to TheMarker took exception to the complaint.
“There is currently NIS 15 billion in long-term savings that is not attributed to anyone. Improving data means that this money will not go astray. We understand that the companies have trouble implementing this [requirement] so we spread it out until 2014. But we would never consider an approach in which NIS 15 billion sits there without anyone demanding it and that the companies would simply benefit,” he said.