Government regulation similarly splits the pundits.
But according to Rebecca Davies, chief executive of The Association of Art & Antiques Dealers, there is already enough regulation of the art market. Government intervention, she writes in the report, isn’t the solution, noting “bureaucracy simply results in poorer regulation, increased costs, and reduced competition.” On this point there is some disagreement: does art’s murky model fuel commerce by allowing big names to splurge on huge pieces with relative anonymity or hinder the market by reducing trust? Striking the right balance, it seems, will be key to any additional regulation.
Some, like Valentin, think the regulation is already there—it just needs to be enforced more efficiently and thoroughly. (Making the art market a law enforcement priority is doubtful given it is “perceived as a fancy market for the privileged few.”) He also posits that appointing an industry regulator, like the Conseil des Ventes Volontaires in France, could be preferable to total inaction.
So what regulation could make a difference?
One answer to the question of where regulation may foster more transparency is foreign transactions. As art lawyers Diana Wierbicki and Amanda A. Rottermund of Withers Bergman LLP write in the report, the U.S. Foreign Corrupt Practices Act and the UK Bribery Act both may inadvertently force some regulation on the art market. The two laws, which make it illegal for “certain individuals and entities to make payments to foreign government officials to assist in the procurement of business, [...] have triggered a rise in private sale due diligence, which has in turn created more deal transparency.”
These laws mean that sending money to an unknown foreign third party could be illegal if that party is a government official. As such, the pair write that private sales with third parties (such as Chinese buyers) should involve the disclosure of the deal arrangement, the identities of the parties, and documentation of compliance with the corruption statues. Perhaps, they argue, the increased transparency could incentivize others to follow suit.
As art becomes more prominent as an alternative asset class, and the sums fetched by works of art continue to skyrocket, issues of transparency and trust take on an added importance. (This likely explains why money managers are more interested than others surveyed in government regulation.) As Karen Sanig of Mishcon de Reya LLP writes in the report, when prices rise, so does the expectation of fair play. “A reluctance to commit to writing, even a short written agreement, has to some extent enabled the eccentricities of the market to abound,” she writes. Interestingly, the paper trail left by internet commerce could, she argues, make “tighter rules unavoidable.” Laws protecting authenticators from frivolous lawsuits by collectors who don’t like the authenticator’s opinion could also add trust to this aspect of the market.
Don’t hold your breath
Some would argue that additional government regulation doesn’t look politically feasible, at least in the United States. “The lack of transparency clearly leads to title problems and, arguably, reduces trust and depresses values in the long run. However, it is hard to see how this can change without the support of the big stakeholders in the art business,” writes Stephen D. Brodie of Herrick Feinstein LLP. “I also don’t see where they have a sufficient incentive to support such a change, as the current system appears to primarily benefit the big auction houses and the major dealers.” Even though he notes that the due diligence platforms of auction houses and major galleries are “generally excellent,” Brodie points out that there are other ways to increase confidence in the art market, like title insurance—though the idea has not yet found widespread support.