Balancing regulation and freedom of enterprise

The financial regulator aims to protect consumers without stifling business, writes Caroline Madden

As a nation we will spend a record €23 million an hour panic-buying presents this Christmas Eve. When I heard that statistic last week, I was spurred into action and headed into Dublin city centre to tackle my Christmas shopping early - or so I thought.

I soon realised that everyone else had exactly the same idea. The streets were already thronged. Elbowing my way through packed shops quickly lost its attraction and I was beating a hasty retreat along Dame Street when a building near Starbucks caught my eye.

I've always walked straight past the Financial Regulator's Information Centre to be honest, but it looked so blissfully free of festive shoppers that for once I decided to have a closer look.

Admittedly the chocolate euro on offer in the centre will never be as popular as the mocha frappa choccicinos being dished out around the corner.

But when it comes to clear, down-to-earth and, most importantly, free advice, the financial regulator knows what it's doing.

For example, they've compiled cost surveys on everything from car insurance to student current accounts which will save you some of the tiresome legwork involved in shopping around.

And, rather than waiting for the dreaded "insufficient funds" message to pop up when you next visit an ATM, why not check out their guide to managing your money, and learn how to create (and stick to!) a realistic budget? If you can't make it to Dame Street, then simply take five minutes out from shopping online and log on to www.itsyourmoney.ie.

Not only does the financial regulator help consumers to make informed financial decisions but it also acts as a watchdog of companies providing financial services.

It was set up three years ago by the Government in the wake of a series of financial scandals - such as overcharging and bogus non-resident accounts - which damaged consumer confidence in the banking community.

The financial regulator imposes rules which are designed to protect consumers' savings and investments.

It also develops "codes of conduct" to ensure that financial firms deal with consumers fairly and openly.

This may sound relatively straightforward, but in fact the regulator is tasked with a very difficult balancing act - protecting consumers without creating so many rules that financial services firms become tied up in red tape and bureaucracy.

"Our constant challenge is to adopt a proportionate approach to regulation by striking a balance between the advantages of regulation and the constraints it imposes on financial service providers," says Pat Neary, chief executive of the financial regulator.

"A key part of our approach is to foster an environment that allows for innovation and competitive financial services.

"We know that regulation can create barriers to entry and potentially reduce both competition and competitiveness," he continues.

"We also know that good regulation can help make markets more competitive and attractive, so these issues do not have to be in conflict."

He believes that, through dialogue between all stakeholders, Ireland will continue to be a financial centre of high reputation, attracting major players in the financial services market.

"Operating from a jurisdiction with a reputation for sound regulation is an essential marketing point," says Dave Fagan, chief executive of Irish Life International. However, when it comes to regulation, sometimes less is more.

"Too much regulation can be counter-productive," he observed last week at a conference on regulation. "Regulation should influence, but not shape, the business environment."

He points out that international businesses have to grapple not only with Irish regulation but also the consumer regulation agenda in each of their target markets.

Danny McCoy, director of policy at employers' group Ibec, describes the regulatory burden facing financial firms in the EU as "particularly excessive".

It takes 40 days to start a business in the EU compared to just four days in the US. Complying with regulations costs businesses in the OECD 4 per cent of their annual turnover, he says.

Bill Prasifka, chairman of the Competition Authority, agrees that complying with regulation is costly and tends to affect smaller companies disproportionately. However, he says the real cost of regulation is the opportunity cost - "the players that never entered the market, the innovation that never took place".

Regulation can act as a barrier to entry and innovation, he explained, and can be inflexible and slow to adjust to changes in the dynamic financial services market.

It is essential therefore that regulations are carefully reviewed to ensure that they actually are in the interest of consumers.