Art Industry Self-Regulation

At the World Economic Forum in Davos, Switzerland during January 2015, leading world economist Nouriel Roubini publicly attacked the global art industry for being secretive and opaque, and called for its regulation. Roubini’s remarks were based on anecdotal rather than empirical evidence. But later that year robust evidence was gathered from key stakeholders in the art industry by Deloitte and ArtTactic, and presented in their jointly published annual Art & Finance Report 2016. Deloitte is a major multinational financial services network that in recent years has specialised in art-related business intelligence services, while ArtTactic is a leading art market analysis firm offering bespoke intelligence on the global art market.

The Report includes an extensive new section addressing the question of art industry regulation: ‘We realise that there are significant challenges ahead; one of the key challenges is regulation and the increasing cost of compliance. While the private banking and wealth management industry is undergoing and still adapting to increasing industry regulation, the art market itself is increasingly coming under scrutiny for the apparent lack of regulation.’ A qualitative survey was administered to around 40 ‘key opinion formers, representing different stakeholders in the market, to express their views on what they believe are opportunities and challenges for the art and finance industry now and in the future’. Responses were given by professional art lawyers, wealth managers, art market professionals and art collectors: each was asked to address issues ‘that pose the biggest threat to the reputation and functioning of the global art market’.

There is strong agreement among stakeholders surveyed about serious problems undermining trust in and credibility of the art market, including top price manipulation, conflicts of interest, lack of transparency, secret commissions and authenticity. There is also agreement on the need for market operators to ‘take self-regulatory action’ to address such problems, which the report highlights together with possible solutions. These are illuminating and instructive.

A large majority of stakeholders surveyed agree that issues relating to ‘authenticity, lack of provenance, forgery, and attribution’ are the greatest threats to ‘credibility and trust in the art market’. Authenticity issues relate to dealings not only with older art and antiquities but also with modern and contemporary works. Certificates of authenticity signed by living artists have become a common trade requirement for sales of contemporary works; but there have been worrying reports recently of such certificates being forged or faked (whether or not the accompanying work is in fact authentic). Several novel solutions are reported.

The Global Center of Innovation (based at the State University of New York at Albany in the US) is developing i2M Standards, which aims to ‘establish definitive, third party, peer-reviewed industry standards and solutions for art identification and authentication’ by permanently embedding bio-engineered DNA elements into the surface of art objects. Verisart is an online service that delivers a new way to certify and verify artworks and collectables in real time. By using distributed ledger technology provided by the blockchain – à la Bitcoin – it aims to build a permanent, decentralised and anonymous ledger for the world’s art and collectables; its first product is a free app for artists and collectors to generate certificates of authenticity.

A key finding in the report is that art market transactions ‘are moving from informal arrangements toward a market where careful due diligence and written agreements are becoming more common’. This refreshing and welcome news is amplified in the report by Karen Sanig, head of art law at Mischon de Reya LLP, who says ‘reluctance to commit to writing, even a short written agreement, has to some extent enabled the eccentricities of the market to abound … a slightly more rigid approach to doing deals is starting to appear and ought to help solve some of the anomalies of the market that threaten its reputation … buyers and sellers ought now to require certain written warranties in relation to artworks as part of any transaction … the perceived threats to the art market are in many ways surmountable by exercising careful due diligence in art transactions and committing to written agreements … the usual rules applied to the acquisition of large value assets – like checking ownership or the right to transfer ownership – are often forgotten’.

Another key finding reports the commonly accepted practice of secret commission-taking by agents and dealers acting as intermediaries between buyers and sellers in the international private-sales market. High profile court cases in recent times have attracted widespread media attention, revealing what Sanig describes as ‘a distinct lack of understanding of the fiduciary duties owed by an agent to his principal, including duties not to make a secret profit and to act in the best interest of the principal’. Put another way, it is unlawful for an intermediary agent to be paid a commission fee by both seller and buyer in the same private-sale transaction; unless – like public auction sales – such double-agent fees are disclosed to, and authorised in advance by, both seller and buyer.

Ignorance by art market professionals of business laws applicable to art transactions is the reasoning behind the report’s significant suggestion that ‘there are few professional and qualification standards imposed on art market professionals … one way to improve the current situation is to invest in educating art market professionals on behaviour that is illegal, and making it a requirement that they should inform themselves on the law’.

At the heart of the report’s survey of art market stakeholders lies the question of whether commonly agreed problems and issues should be tackled through government intervention by enactment of laws or through self-regulation by the art industry. Around a third called for government regulation while two-thirds favoured self-regulation. Other global industries that operate self-regulation (and thereby avoid or limit government-imposed regulation) usually do so through national and international trade bodies whose members undertake to abide by mutually agreed codes/standards of practice/conduct/ethics. Such bodies usually offer trading customers/clients complaint/ombudsman/arbitration services that monitor compliance by members and hold them to account. Although many such bodies operate in the art market industry locally or nationally, few operate on an international basis.

Development and enforcement of robust self-regulatory standards presents an important challenge for all art industry trade bodies, especially those operating in major art markets such as the UK’s British Art Market Federation (BAMF), Association of Art & Antiques Dealers (LAPADA), Society of London Art Dealers (SLAD), or the US’s Art Dealers Association of America (ADAA) and the National Antique & Art Dealers Association of America (NAADAA). The European Fine Art Foundation (TEFAF) operates the leading annual art fair at Maastricht in the Netherlands and is widely regarded as having the highest standard of ethical art trade practices.

If the global art industry avoids or delays introducing effective self-regulation, governments might possibly consider introducing a first regulatory step along the lines established by law in France in 2011: the Conseil des Ventes (CVV), which exercises disciplinary powers over the auction industry aimed at better protecting buyers and sellers. Such a possibility is envisaged in the report by Pierre Valentin, head of art & cultural property law at Constantine Cannon LLP, who says ‘whilst it is difficult to see how an industry-appointed regulator could impose sanctions on industry members, this might be preferable to doing nothing at all’.

© Henry Lydiate 2016

Still need help? Contact us

Similar Artlaw articles

Related articles / resources

Featured project

Conway Hall Library fireplace, photo Andrew Shaylor

Conway Hall Residency

An annual research residency from Artquest in partnership with Conway Hall Humanist Library and Archives This slideshow requires JavaScript. This project is temporarily suspended due to ongoing restri… Continue Reading Conway Hall Residency

Read more


This article is from the Artlaw Archive of Henry Lydiate's columns published in Art Monthly since 1976, and may contain out of date material. The article is for information only, and not for the purpose of providing legal advice. Readers should consult a solicitor for legal advice on specific matters. Artists can get free online legal information from Artquest.