iPredict 'a thing of beauty' and no sensible place to launder money
OPINION: If you wanted to launder money, iPredict would hardly be your best choice. It would be unlikely to even make anyone's Top-20 list – or at least the Top-20 list of anyone sane. You could concoct implausible movie-plot scenarios around it, perhaps, but they would rely on the viewer's never having traded on iPredict.
And so it was surprising to learn yesterday that Simon Bridges took the Ministry of Justice's advice and effectively shut it down.
For those unfamiliar with it, iPredict was, in my view, one of New Zealand's crown jewels. It is an online, real-money prediction market in which any Kiwi can set up an account and trade event derivatives. Traders with small bits of information on topics ranging from which candidate might win which by-election, to the inflation rate, to whether the US Senate might ratify the TPP, could go in and buy and sell contracts that paid out based on those events' outcomes.
Market prices then were reasonable assessments of the likelihood that the event would happen. And, if you thought the prices were wrong, you could make a bit of money on it – if your prediction were better than the existing market consensus. iPredict prices on future inflation outcomes have even featured in Reserve Bank of New Zealand reports.
It was a crown jewel because no other country really managed to set their regulations properly to allow real-money prediction markets to exist. In America, puritanical worries about online gambling, combined with lobbying by casino interests trying to block any potential competitors, prevented anything that looked like online gambling – prediction markets largely included. While the Iowa Election Stock Market has a long history, it is not an easy place for people to trade. iPredict was a thing of beauty that, to me, helped symbolise New Zealand's pragmatic and sensible regulatory approach.
That all ended yesterday. On advice from the Ministry of Justice that it was possible that somebody might some day decide to launder money through iPredict, Simon Bridges killed it. iPredict always ran on the smell of an oily rag, subsidised by Victoria University at Wellington. It would never have been able to afford big-bank style Anti-Money Laundering regulations – or even slightly toned down versions. While Ministers and Ministries can glibly reckon that regulatory compliance costs won't be too high, banks have found the anti-money laundering regulations to be incredibly costly. iPredict did not stand a chance.
When iPredict was established, they deemed the money laundering risk so low that there would not be regulatory compliance issues unless either the Americans invaded, or communists were elected. They did not count on the current National government.
The Government has killed a thing of beauty to guard against a risk that would have been implausible as movie scenario. In doing so, they've ruined our best, and one of the world's best, sources of accurate information on the chances of events happening. Colleagues who attended the British High Commission's election night party for the UK election reported that they had iPredict up on the big screen as a way of keeping track of who was winning.
Simon Bridges's decision is incredibly disappointing. I hope he reconsiders it. And, perhaps, it is time to rethink the anti-money laundering regulations as a whole.
Dr Eric Crampton is head of research at the New Zealand Initiative