Americans spend millions each year to support a regulatory system that is paid for through fees and tax dollars in an effort to keep the financial system and transactions safe and free of scams and illegal activity. Of recent, this has been a difficult job due to increased sophistication of the financial products and global nature of the investments. The problem has also become complicated with rogue currency trades in Singapore, impacting financial institutions in London, that result in bankruptcies in New York. This creates a global complex problem for regulators in terms of understanding the violation and how it impacts multiple markets. Anyone involved in law enforcement knows the problems of jurisdiction. No matter how much money, manpower and time regulators put forth, there will always be someone with a creative angle to increase profits in an ill-gotten manner.
Now the far majority of the industry is honest and honorable while operating in their client’s best interest. Unfortunately, the scams are large and appear to be more frequent. Self-regulation should be a major force and an effective powerful one if working properly. So how can the industry, and regulators, create a system that rewards the honest and honorable while punishing the criminal? (I also include in my definition of “criminal” those that pay a fine while admitting no “wrong doing”.)
I propose a Financial Violators Tax (FVT) as opposed to a Financial Transactions Tax (FTT). The FVT is simple. The rate is 20% of revenue. But, there are credits. Credits are provided according to your record. If you are a honest financial institution and have no violations, your tax credit is 100% and you pay no tax. If you have violations, the size and type of violation determines the credit, or loss of credit. That way the most serious violators in terms of frequency and size will be paying the most. This system provides several benefits not available in the current system or the proposed transactions tax.
First, it rewards good behavior with a full credit resulting in no tax.
Secord, it penalizes the cheat or those that lack controls.
Third, clients are thereby rewarded through lower fees from good firms because their tax charge is lower.
Fourth, the financial institutions that are not obeying the rules pay for the regulation from higher taxes rather than all of us paying under the current system.
Fifth, the public will easily know how good the financial institution is in following the rules by simply looking up an institutions tax payments. Zero = good.
Sixth, the new system is self-funded rather than an universal tax thereby lowering the financial burden for all levels of government.
I would be in favor if such a system if proposed; I hope they take the suggestion.