New York City has eliminated regulations it designed to govern the auction industry, a sharp policy reversal that is part of a sweeping effort to improve conditions for businesses after the economic damage wrought by the coronavirus pandemic. coronavirus.
Designed to help small businesses by cutting red tape and lowering penalties, the changes will also loosen restrictions on big companies like Sotheby’s and Christie’s, which sell billions of dollars worth of art and other items each year.
The regulations had been enacted over decades to increase oversight of a long art industry considered opaque – with buyers and sellers often shielded from public view – and primarily required certain information to be disclosed, such as whether an auction house had a financial interest in a work being offered for sale.
Representatives from several auction houses said they were surprised by the elimination of the rules altogether and had only learned in recent days of the changes, which were authorized by City Council legislation last year.
As defined by the new lawauctioneers will no longer need to be licensed from June 15. Industry-specific regulations, put in place in response to several scandals and the explosive growth of the art industry, have already expired.
City officials have championed the elimination of the rules as a helpful streamlining that will help improve New York’s business climate. But some art market experts said they fear the city has gone too far.
“The regulations in place ensured that the rules of the game were level playing field in the auction house and that all participants played by the same rules,” said Thomas C. Danziger, an art market attorney who advises collectors on auctions.
“Without regulations, there are no more rules of the road,” he added.
The repeal of the regulations was part of a broader package that also eased restrictions on a host of other industries, including laundries, sidewalk cafes and arcades. This came as other government entities explored whether the U.S. art market needed additional regulation to increase its transparency and fight against money laundering. In February, the US Treasury Department released a report that said that although the market may be vulnerable to money laundering, no immediate action is necessary.
City bylaws governed a different aspect of the art market, namely the protections given to consumers who bid at auction for paintings and other works of art. Some of the rules have been designed specifically for the art market, to ensure that bidders receive the information they need to make informed choices. So, for example, auction houses were required to announce when they had a financial interest in an item being sold.
But auctioneers of other commodities were also governed by regulations that are eliminated under the repeal.
The sweeping approach to help businesses, enacted under legislation known as Local Law 80, has been passed last July in the final months of the de Blasio administration. City officials said in recent years there have been few consumer complaints about auctions and they believe the industry could be effectively controlled by broader consumer protection laws. .
A spokesman for the council said in a statement: “As part of a broader business relief bill which also included lower fines and opportunities to remedy many breaches, the Council has taken into consider the administration’s comments on outdated provisions and unnecessary licensing regimes.”
The statement continued: “The Department of Consumer and Worker Protection (DCWP) has recommended the removal of the auctioneer license requirement due to the minimal number of complaints related to this industry and the fact that most Consumer complaints about deceptive sales practices and misleading advertising could be addressed by the city’s consumer protection law.
Some art market experts said the state’s Uniform Commercial Code and other general business laws would continue to offer protections, but also said these did not specifically define conduct. prohibited and disclosure of necessary auction information as city regulations did.
Several companies, including Christie’s, Sotheby’s and Phillips, said they had not pushed for regulatory changes, which they face as their major May sales approach. Every night, the big houses can sell hundreds of millions of dollars worth of artwork in auction procedures long designed to comply with city regulations.
Christie’s and Phillips said, for now at least, they intended to proceed as if the regulations were still in place.
“Notwithstanding the repeal of the auction regulations, Phillips remains committed to conducting its auctions fairly, transparently and in the best interest of our customers,” it said in a statement.
Sotheby’s declined to say whether it would continue to operate under the old rules.
Part of the old regulations was intended to control a long-standing practice called a “chandelier auction”, under which auctioneers announce a series of mock bids on an artwork to help build momentum in the crowd.
Although chandelier auctions have been permitted by the city, regulations prohibit auctioneers from announcing additional mock auctions after reaching the so-called “reserve price”, the minimum price at which a sender of a work agreed to sell it. The settlement was intended to prevent auctioneers, who receive a percentage of the final sale price, from continuing to invent bids to falsely raise the price.
Another regulation, intended to promote transparency, stipulated that when creating their sales catalogue, auctioneers could not publish an estimated value for a work lower than the reserve price already set by the sender. To do so would be a misrepresentation since the sender and the auction house had already decided that a work would not sell for so little.
Auction house executives have long argued that no matter how reasonable the regulations may seem, they ignored the fact that most buyers at auction were wealthy collectors quite knowledgeable about the nuances of the market.
But a former state lawmaker, Daniel Squadron, who had sought to tighten regulation of the art market in Albany, said such restrictions were helpful. “The way forward for New York auction houses is not to turn them into the Wild West,” he said. “It’s been the same for a decade – to extend the protections that have made the city a great market.”
A major collector, Alberto Mugrabi, also expressed concern about the effects of the changes.
“If auction houses didn’t disclose these things, it wouldn’t be good for them,” he said. “Today you want to give people as much information as possible, so they can make their own decisions.”
Jo Backer Laird, art lawyer at Patterson Belknap Webb & Tyler and former general counsel at Christie’s, said she agreed that repeal of the regulations could shake consumer confidence.
“Without the regulation, I think it’s a blow to auction houses,” she said. “They may think immediately afterwards that it gives them more freedom, but it ultimately leads to an erosion of trust, which is why the regulations were there. If you don’t trust then you don’t consign or buy there. She says she wonders if the deregulation of the big auction houses hasn’t been thought through enough.
“If so, it will be reversed,” she said.