Monday, 30 November 2015

iPredict and the reign of the Vogons

The NBR asked me for comment on the iPredict decision. Here's what I sent through; much of it showed up in Campbell Gibson's piece.
In the Hitchhiker’s Guide to the Galaxy, only one species had the bureaucratic bloodymindedness necessary for seeing things through, no matter how stupid it was to apply the rules in particular cases, or how horrible the consequences: the Vogons.
iPredict is one of New Zealand’s beautiful things. Established at the University of Victoria at Wellington shortly before the 2008 election, it allows real-money trading on political event futures. If you wanted to know the odds that National would win the next election, that Winston Peters would be in the next coalition, or that Wellington might amalgamate, iPredict was the place to go. If you thought the prices were wrong, you could put your dollar vote in and turn a profit by adding your information into the mix.
While other countries never really managed to get these right, New Zealand’s pragmatism saw us through. The Gazetted iPredict regulation let the tiny non-profit operate under rules that were fit for purpose. In America, an unholy coalition of casino gambling interests and anti-gambling Senators worked to ensure that Americans couldn’t easily trade real-money contracts on political events. New Zealand knew better. I considered it an important part of our “Outside of the Asylum” status. While regulations in the rest of the world were dumb enough to prevent beautiful things, New Zealand knew better.
And oh but it was beautiful. Its prices were the best fair-odds around on political events. There was never a ton of money in it – the volume was too low. But because enough politics insiders enjoyed it for its own sake, the listed prices were sharp. At Canterbury, I had fun setting Honours projects based on its data.
New Zealand yesterday took a sharp jump out of the Outside of the Asylum when Simon Bridges decided that a tiny shoestring-budget outfit like iPredict had to comply with anti-money laundering regs that even the big banks found a really tough slog. I don’t know how much he tried to ease things in recognition of iPredict’s smaller scale, but regulatory costs that seem small to a Minister can be impossible for an outfit that was always on the edge of financial viability. And as for the odds that it could have been used for any kind of money laundering? Well, I'd have been shorting the relevant contract even at 5% odds.
In short, the decision is regulatory murder: Vogons crushing beautiful jewelled crabs, just because. I hope the decision can be rescinded.
I visited similar themes in a piece I wrote for the Dominion Post.
That all ended yesterday. On advice from the Ministry of Justice that it was possible that somebody might some day decide to launder money through iPredict, Simon Bridges killed it. iPredict always ran on the smell of an oily rag, subsidised by Victoria University at Wellington. It would never have been able to afford big-bank style Anti-Money Laundering regulations – or even slightly toned down versions. While Ministers and Ministries can glibly reckon that regulatory compliance costs won't be too high, banks have found the anti-money laundering regulations to be incredibly costly. iPredict did not stand a chance.

When iPredict was established, they deemed the money laundering risk so low that there would not be regulatory compliance issues unless either the Americans invaded, or communists were elected. They did not count on the current National government.

The Government has killed a thing of beauty to guard against a risk that would have been implausible as movie scenario. In doing so, they've ruined our best, and one of the world's best, sources of accurate information on the chances of events happening. Colleagues who attended the British High Commission's election night party for the UK election reported that they had iPredict up on the big screen as a way of keeping track of who was winning.

Simon Bridges's decision is incredibly disappointing. I hope he reconsiders it. And, perhaps, it is time to rethink the anti-money laundering regulations as a whole.
I know that the Americans have forced us into the AML regime under threat to basically make financial transactions impossible with American firms. But only Vogon bloody-mindedness can explain hitting iPredict as part of it.

And here's Scott Sumner lamenting what we've lost.

I doubt either the Ministry of Justice or Bridges knew, or cared, about what they were destroying.

When John Key gets around to forcing a referendum on changing the National Anthem, one of the four five options should be "Oh Freddled Gruntbuggly", set to an appropriate tune.

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