How the Financial Sector Can Benefit from Self-Regulation
Researcher Sanne de Lint on professional competence, oversight, and why the financial sector could make greater use of self-regulation
When Sanne de Lint began her research on the oversight of professional competence in the financial sector, she did not expect to be most surprised by what was not happening.
The lecturer and researcher in Constitutional and Administrative Law at VU University Amsterdam studied the role of DSI in the oversight of investment professionals. In doing so, she compared the system to other sectors where private entities play a role in monitoring quality and compliance. Her conclusion is strikingly simple. “I was actually immediately positive about how this works. That’s precisely why I think it’s a shame that it isn’t better known.”
In sectors such as construction, food safety, and transportation, public-private partnerships in regulatory oversight are common. For example, this takes the form of a private body that issues a certificate for a product or service, which a public regulator then takes into account or relies on in its oversight. The financial sector, however, is an exception to this. Yet, according to De Lint, the sector actually seems well-suited for such forms of collaboration. “The financial sector is well-organized. There are strong industry associations, a wealth of specialized knowledge, and clear standards. So you have to wonder: why doesn’t this happen more often?”
A Professional Driver’s License
Professional competence is a concept that virtually every financial professional deals with on a daily basis. Yet many people find it difficult to explain exactly what value certification adds.
During her interviews, De Lint heard a comparison that stuck with her. “DSI is basically a kind of driver’s license for the profession.” It’s no guarantee that someone will become an excellent advisor, but it does confirm that a professional possesses a certain foundation of knowledge, experience, and up-to-date expertise.
It is precisely this foundation that proves valuable to many organizations—not because customers explicitly ask for it, but because it provides clarity internally. A compliance officer doesn’t have to prove over and over again that employees are complying with laws and regulations. That work has already been done. “There’s no longer any debate about whether someone meets the requirements. That brings peace of mind.”
“The alternative is to organize everything yourself, which would be incredibly complicated.”
According to De Lint, people often underestimate how much work is involved. “Almost everyone said the same thing: if we have to organize all of this ourselves, it’s going to be incredibly complicated. Exams, training programs, administration, audits, reporting to the AFM. That takes a lot of time and money.”
This also clarifies the division of roles. The AFM remains the statutory regulator responsible for ensuring compliance with professional competence requirements. DSI does not assume that role, but assists the sector by providing a recognizable market standard that allows organizations to efficiently demonstrate that their employees meet those requirements. It is precisely this combination of public oversight and private implementation that De Lint views as one of the strengths of the current system.
Voluntary, but not without obligation
At the same time, this is also where the system’s vulnerability lies. DSI certification is not mandatory. Organizations may also demonstrate their employees’ professional competence in other ways. Legally, there is nothing wrong with that. However, this does create room for what the study refers to as “free-rider behavior”: organizations that do make use of the infrastructure and standards developed by the sector but do not (fully) participate, and thus pay little or nothing into the system itself.
No one knows exactly how big that problem is. The very organizations that do not participate turn out to be difficult to reach for research purposes. “I actually found that to be one of the most interesting findings. You want to understand why some organizations don’t participate, but it’s precisely that group that often remains out of sight.”
It is striking that a number of observations from De Lint’s study are echoed in the recent evaluation commissioned by the AFM regarding the agreement with DSI. In that evaluation, the system is described as efficient and effective, but the researchers also point out areas of concern regarding registration rates and “free-rider behavior.” According to De Lint, this confirms above all that a self-regulatory system requires ongoing maintenance.
“You have to check every now and then to see if it’s still working as intended.” According to her, that’s exactly why evaluations are important. Not because anything is wrong, but because a system that’s been in place for nearly ten years needs to be reviewed regularly. “I actually found it striking that the AFM waited such a long time to conduct such a comprehensive evaluation. Not because it wasn’t working well, but precisely because you want to check every now and then to see if everyone still shares the same understanding of how the system functions.”
Independence turns out to be primarily a matter of expertise
A recurring question in public-private partnerships is that of independence. Can an organization funded by the sector truly maintain sufficient distance from that same sector? On paper, that’s a logical discussion. In practice, De Lint encountered hardly any doubts. “That was perhaps the biggest surprise to me. In other sectors, there’s much more debate about this.”
According to her, the explanation lies not so much in formal rules or governance documents, but elsewhere. In expertise. Committees, accreditation processes, and advisory groups are made up of experienced professionals from the sector itself who stake their reputations on the quality of the standards. This creates a natural counterbalance to lobbying. “What I heard was more that experts want to raise the bar rather than lower it.”
“DSI is basically a kind of professional certification.”
According to her, this touches on a major misunderstanding about independence. “Independence is not an end in itself. Ultimately, what matters is that the quality of the system remains credible.”
A mirror for the industry
For organizations, DSI certification offers an efficient way to ensure professional competence. For professionals, it serves as visible proof of quality, professionalism, and integrity. For the AFM, it provides support in its supervisory activities.
After dozens of interviews and months of research, one thought in particular ultimately stuck with me. Not that the system is perfect. Not that everything should be mandated by law. But rather that the financial sector may not be making sufficient use of a tool that has been in use elsewhere for years.
“The financial crisis is now well behind us. Perhaps this is precisely the time to take another look at how supervision is organized and where public-private partnerships can help.”
Want to know more? The full research report by Sanne de Lint is available on the website of the Vrije Universiteit Amsterdam. There you will find the complete research design, analysis, and conclusions that form the basis of this interview.
