New York City removes rules governing art and other auctions

New York City removes rules governing art and other auctions

New York City has scrapped regulations it had designed to govern the auction industry, an abrupt change in policy that is part of a broad effort to improve conditions for businesses after the economic damage wrought by the coronavirus pandemic.

Designed to help small businesses by reducing red tape and penalties, the changes will also have the effect of easing 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 for decades to increase oversight of an art industry long seen as opaque, with buyers and sellers often shielded from public view, and primarily required certain information to be disclosed, such as whether a house of auctions had a financial interest in a work for sale.

Representatives from several auction houses said they were surprised by the complete removal of the rules and had only learned in the last few days of the changes, which were authorized by City Council legislation last year.

Under the new law, auctioneers will no longer need to be licensed starting June 15. Industry-specific regulations, put in place in response to various scandals and the explosive growth of the art industry, have now expired.

City officials defended the removal of the rules as a helpful simplification that will work to improve New York’s business climate. But some art market experts said they worried the city had gone too far.

“The regulations in place ensured that there was a level playing field in the auction room and that all participants followed the same rules,” said Thomas C. Danziger, an art market attorney who advises collectors on auction submissions.

“Without regulations, there are no more traffic rules,” he added.

The repeal of the regulations was part of a broader package that also eased restrictions on a host of other industries, including laundromats, outdoor cafes and arcades. It came as other government entities have been studying whether the US art market requires more regulation to increase its transparency and combat money laundering. In February, the US Treasury Department released a report saying that while the market may be vulnerable to money laundering, there was no need for immediate action.

The city’s regulations governed a different aspect of the art market, namely the protections afforded to consumers who bid on paintings and other works of art at auction. Some of the rules were designed specifically for the art market, to ensure bidders received the information they needed to make informed decisions. So, for example, auction houses were required to announce when they had a financial interest in an item being sold.

But the auctioneers of other products were also governed by regulations that are eliminated with the repeal.

The radical approach to helping businesses, enacted under legislation known as Local Law 80, was adopted last July in the final months of the de Blasio administration. City officials said there had been few consumer complaints about the auctions in recent years and that they believed the industry could be effectively policed ​​by broader consumer protection laws.

A spokesperson for the council said in a statement: “As part of a broader business relief bill that also included reduced fines and opportunities to cure numerous offences, the Council considered the administration’s comments on outdated provisions and unnecessary licensing schemes. ”.

The statement continued: “The Department of Consumer and Worker Protection (DCWP) recommended eliminating the auctioneer license requirement based on the minimum number of complaints related to this industry and the fact that most of consumer complaints regarding 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 trade laws would continue to offer protections, but they also said they did not specifically define prohibited conduct and required disclosure at auctions as the state regulations did. town.

Several companies, including Christie’s, Sotheby’s and Phillips auction houses, said they had not pushed for changes in regulations, which they face as they approach their major May sales. On any given night, major houses can sell hundreds of millions of dollars worth of art through bidding procedures long drawn up to meet city regulations.

Christie’s and Phillips said that, at least for the time being, they intended to proceed as if the regulations were still in place.

“Despite the repeal of auction regulations, Phillips remains committed to conducting its auctions in a fair, transparent manner and in the best interest of our clients,” it said in a statement.

Sotheby’s declined to comment on whether it would continue to operate under the old rules.

One part of the previous regulations was designed to police a long-standing practice called “chandelier bidding,” whereby auctioneers advertise a series of fictitious bids on a work to help build momentum with the crowd.

Although the city has allowed the auction of chandeliers, regulations prohibit auctioneers from advertising additional fictitious bids after reaching the so-called “reserve price,” the minimum price at which a consignor of a work has agreed to sell it. The regulation was intended to prevent auctioneers, who earn a percentage of the final sale price, from continuing to fabricate bids to falsely increase the price.

Another regulation, designed to promote transparency, said that when creating their sales catalog, auctioneers could not publish an estimated value for a work that was below the reserve price already set by the consignor. To do so would be a misrepresentation since the consignor and the auction house had already decided that a work would not sell for so little.

Auction house leaders have long argued that, as reasonable as the regulations may seem, they ignored the fact that most of the buyers at auctions were wealthy collectors who were fairly well informed about the nuances of the market.

But a former state lawmaker, Daniel Squadron, who had sought to strengthen regulations 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 is the same as it has been for a decade: expanding the protections that have made the city a great market.”

A leading collector, Alberto Mugrabi, also said he was concerned about the effects of the changes.

“If the auction houses didn’t reveal those things, it wouldn’t be good for them,” he said. “Today you want to give people as much information as you can, so they can make their own decisions.”

Jo Backer Laird, an arts attorney at Patterson Belknap Webb & Tyler, and a former general counsel at Christie’s, said she agreed that repeal of the regulations could affect consumer confidence.

“Without the regulations, I think that’s a blow to the auction houses,” he said. “In the immediate aftermath, they may think this gives them more freedom, but ultimately it leads to an erosion of trust, which is why the regulations were there. If you don’t trust, then don’t consign or buy there.” He said he wondered if deregulation of the big auction houses hadn’t been given enough thought.

“If that is the case, it will be reversed,” he said.

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