In a Surprise Move, New York City Has Eliminated Longstanding Regulations Designed to Boost Transparency in the Auction Industry
Some say the change could backfire on the auction sector.
In what could be a major shift for the auction business, New York City has done away with a set of regulations developed over the past three decades to provide at least some degree of financial transparency in the still-opaque art industry.
The move, which came via a City Council vote last summer and goes fully into effect on June 15, drops the requirement for an auction house to have a license from the city in order to operate in New York. It also loosens or eliminates some rules about the information auction houses must disclose to potential buyers.
The city began regulating auctioneers in the 1980s following a string of lawsuits in which auctioneers acted against sellers’ interests. Since then, the international art market has grown more professionalized—and considerably more valuable.
According to the New York Times, which first reported the elimination of the rules, the City Council’s move is part of a broader effort to improve conditions for businesses still rebounding from the pandemic. But unlike most of the other industries affected by the changes—such as laundries, sidewalk cafes, and arcades—New York auction houses can pull in billions of dollars of revenue annually.
Representatives for the city told the New York Times it had received very few complaints about the auction industry in recent years and that they believe broader consumer protection laws will suffice to keep bad actors in line. New York City Mayor Eric Adams’s office did not respond to a request for comment from Artnet News.
Under the loosened rules, auction houses no longer have to identify when a third party has a financial interest in a lot (including whether someone has put forth an irrevocable bid or financial guarantee in advance). They also do not need to disclose when the auction house itself has a financial interest in a work coming up for auction.
Furthermore, auction houses now have more freedom in how they set estimates. Previously, they were not permitted to set a reserve, or the minimum price at which a consignor has agreed to part with a work, above the low estimate, in order to more faithfully capture the market conditions.
Finally, rules around “chandelier bidding”—in which the auctioneer creates the appearance of demand by pretending to take a bid that is not real until he reaches the reserve price—will also become much more lax.
Artnet News reached out to several experts in the art world, including art advisors and attorneys who specialize in art law, to get their reactions to the news. Responses ran the gamut from the equivalent of a verbal shrug to serious concern about whether a lack of transparency could damage client confidence and harm the market.
One expert noted that even though there are no bespoke auction-business rules in cities like London and Hong Kong, most, if not all, locations abide by the rules set in New York City, such as identifying guaranteed lots with particular symbols—each house has its own codes—as well as making pre-auction announcements in the salesroom about which lots carry financial arrangements.
“It’s surprising but I would be equally surprised if the major auction houses practices were to change very much as a result,” one attorney said. “All I’ve heard is that it was something the [Department of Cultural Affairs] did on its own as a cost-cutting measure.”
Others were more concerned. Michael McCullough of Pearlstein & McCullough LLP, a former Sotheby’s lawyer responsible for insuring compliance with New York City’s auction regulations, said even the existing rules did not do enough to cast light on guarantee arrangements.
“I expect the creative use of guarantees to continue, and I don’t expect greater transparency into those financial arrangements,” he said. “This is a significant concern to buyer and to price stability in the market.”
Some players said it won’t be in the auction houses’ interest to cast off the rules entirely. “If the auction houses throw caution to the wind and act as if the art market is suddenly the Wild West, they’ll start to lose the confidence of their purchasers and/or consignors,” art advisor Todd Levin said. This is especially crucial when it comes to the all-important millennial buyer: “Younger clients are accustomed to and more demanding of all information being made available to them on multiple platforms at all times, broadly speaking,” Levin said.
A representative for Christie’s told Artnet News that “Christie’s holds itself to the highest ethical standards. We did not advocate for changes to the regulations, and continue to operate as we have been.”
A representative for Phillips told Artnet News that “Notwithstanding the repeal of the auction regulations, Phillips remains committed to conducting its auctions fairly, transparently, and in the best interest of our clients.”
“With numerous auction locations around the world, our policies are consistent and designed to operate fairly on a global basis and in the best interests of our clients,” according to an email from Sotheby’s.
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