Illusion of self-regulation: when there will be an alternative to state regulation of the economy in Ukraine?


Imagine that when buying a dreamed apartment, you relied on a realtor, but he turned out to be a fraud. I would rather not think about such a situation, but it turns out that the realtor activities are not regulated by a separate law today.

It is absolutely real to assume such a situation, especially if you found such a ‘specialist’ on the Internet. At the same time, there are several professional associations establishing rules of activity for their members, monitor their execution, punish for violations and maintain public registries in this market. In fact, these organizations independently regulate the activities of their members, that is, they are self-regulatory organizations. When dealing with representatives of such profile associations, consumers can be sure of the quality of services provided.

Another example of self-regulation in the area, which is not regulated by the state, is the activity of mediators (mediation in out-of-court settlements). There are the same voluntary associations of profession representatives, codes of ethics, and additional responsibility to consumers. Moreover, since the market of mediation services is rather specific and not well developed in Ukraine, such organizations, actually, promote this activity and facilitate the mediator profession development at world-class standards in our country.

There are a lot of similar examples. But all these associations have the same key element – they act as non-governmental organization, but not as self-regulatory ones (SROs). That’s because the laws provide for the possibility of obtaining a SRO status only in 15 areas: valuation activities, land valuation, architectural activities, professional activities in the securities market, activity of court-appointed managers, insurance activities, tourism and several others. Actually, today, there are more than 20 organizations with the official status, but we have a range of fundamental questions about the real implementation of their self-regulation.

Given this situation, the state should solve the problem of obtaining the official status by those who take care of their reputation and develop a market or profession and revoke the status of organizations that do not deserve it. However, numerous attempts to adopt a comprehensive law that would regulate this gap have not been effective.

Recently, the self-regulation topic has been revived in Ukraine. They organize public discussions and debates, prepare analytical materials, develop a state policy, conduct ongoing consultations with the business environment and create a working group to draft a law. The level of transparency and inclusiveness of processes is maximized as never before. This allows everyone to speak and be heard. And most importantly, the draft law, which is being developed this time, is clear from the beginning and supported by businesses. It is not imposed by officials, while being developed by representatives of different markets who are well aware of how they will live according to new rules, what this brings and what requires.

The most important thing is that everyone is aware: if the law is not adopted now, nobody will return to this topic in a year or two. Everything will develop in some way, chaotically and unsystematically, and these processes will not be stopped then. We will delay the institutionalization of real effective market mechanisms to regulate the economy for a long time, leaving no options other than total state regulation along with an everlasting desire for deregulation.

However, despite all the benefits of legislative definition and recognition of the self-regulation, the main concern remains: how to minimize all risks of irregularity and not to over-regulate self-regulation?

Let’s start with the question that we like so much: do we need the law on self-regulation? And the answer is yes.

Currently, self-regulation is the exclusive option of the elect. As previously mentioned, dozens of associations actually perform self-regulatory functions and, at the same time, can not officially position themselves as SROs. And what is this status? It implies getting reputation benefits, having the consumer awareness about your activity and gaining influence among domestic and international partners. And, of course, this is the first step to become an organization recognized by all as a regulator. Therefore, the task of the draft law, first of all, is to create the necessary conditions for each non-profit organization that has self-regulatory signs (meets a certain set of criteria) and seeks to become a SRO to obtain a special status with minimal administrative obstacles. While now this is possible only in cases when granting the status is provided for by a special law, there are necessary subordinate acts and when the relevant ministry approves, the adoption of the framework law on self-regulation will make these procedures almost automatic and they will be carried out under the principle of registration by a state registrar. At the same time, if the organization no longer meets at least one of the criteria, it becomes deprived of the self-regulatory status and continues to exist as the non-governmental one.

Let’s get to the question that everyone is afraid of. How to prevent monopolization in the area and so-called ‘corruption privatization’?   

I think everyone will agree that there is almost no entrepreneur who would not secretly dream of becoming a monopolist. We have a similar situation with self-regulation. In different areas, there are already brilliant ideas that there should be only one SRO bringing together all the market or profession representatives. They give examples of European countries having such a model. And this is a reality (for example, German factory workshops that have arisen, mind you, together with the cities).

But we should not forget that Ukraine has its own history, we do not have a sufficiently developed culture of professional and business associations, we just begin to build our market economy. Any anti-competitive activities, especially when transiting from state regulation to alternative self-regulation, will scrap the right idea, which, under the right conditions, will eventually lead to the consolidation of SROs in the markets not artificially but naturally. Because it is axiomatic that ‘the best ones can survive’. Therefore, there should be no monopolies in self-regulation. Everyone should have equal opportunities to create a SRO and the right to choose to participate in such an organization.

The next message is that the self-regulatory organization is nothing more than a public institution. When getting the official status, it will move from the self-governing level, when governance regarding internal processes takes place internally and between members, to the self-regulatory level, when the state and, most importantly, consumers come into play. Such an organization becomes a regulator for its members and a quality guarantor to consumers. Therefore, its activities should be absolutely public and transparent, and there should be no risks of abuse and conflict of interest within the SRO. The privatization of corruption can be prevented if those who create rules in SROs are completely separated from those who ensure their implementation from the very beginning. SRO members can not have any private interests in the organization or interfere with the work of its ‘service bodies’ (executive and controlling ones).

There is one more thing that should be regulated by the law. We are talking about the SRO membership. It is obvious that tour operators can not be the members of the organization regulating activities of dairy producers. This is a crude example, but its message is clear. The key element of the SRO activity is that its members (representatives of a particular type of activity) accept and agree to comply with the rules, under which they act as business or as professionals. These same members of the organization elect the governing bodies that regulate and control activities of the SRO and its members. They may also use a quality mark if the association has approved it. Therefore, there is a clear claim that a person who does not deal with the type of activity regulated by the organization can not influence the decision-making and be subject to the rules.

There are a number of options on how SROs can interact with expert and academic communities and so on, for example, the associate (affiliate) membership. Such things should be clearly separated to preserve the self-regulation distinctiveness and its performance in the form of a self-regulatory organization.

So, today we have a real chance to give the official start and provide the necessary support to develop a self-regulation concept in Ukraine by adopting the framework law. Is it a panacea for all the problems and disadvantages? Of course, it is not. The law is nothing more than a guarantee of the same rules for anyone who wants to play this game. Those who are interested in this will take up and develop it further, while those who don’t care will pay no attention to it. But it is undoubtedly necessary, because self-regulation in Ukraine is not an illusion any more, but a reality that is being subjectivized more and more with each coming day. The Better Regulation Delivery Office has been taking the lead in self-regulation changes and processes for more than two years. Today, working side by side with the Ministry of Economic Development and Trade and market representatives, we tripled our chances of success, so we continue to move forward. The law will be adopted!

The views expressed in this article reflect solely the author’s point of view and do not necessarily coincide with the position of the EU Delegation to Ukraine.