In a secret location in the UK, there is a warehouse the size of a football pitch that climbs five storeys into the sky. Under its gargantuan roof are more than three million boxes and, in these boxes, are thousands and thousands of files and innumerable documents.

The warehouse uses all of the latest security systems and fireproofing to keep the unending rows of records, forms and copies of forms safe. It is a storage facility amassing all of the documents companies need to archive to prove they have complied with a range of regulations and procedures, from accident reports to disciplinary notes, from invoices to parking permits. Quantity competes with quality when it comes to regulation, and the rule book is getting thicker and denser.

StreamliningWhen the US’s Dodd-Frank law was finally signed off by president Obama last year, it was 2,319 pages long. Its far-reaching predecessor, known as the Glass-Steagall Act from the 1930s, was just 200 pages. Dodd-Frank also creates 12 new regulatory bodies that will, in turn, draft their own procedures; estimates for the law’s implementation are around the $30bn mark.

Yet much regulation, when it is introduced, is heralded as streamlining and simplifying what came before: in the UK, the Financial Services and Markets Act 2000 (born out of the collapse of Barings Bank in the 1990s) was not only supposed to better regulate, but also to rationalise and modernise the regulation that went before – the Financial Services Act 1986. The 1986 Act had 10 parts and 17 schedules, the 2000 Act has 30 parts and 27 schedules.

Then came the Companies Act 2006, which overhauled the Companies Act 1985. The 1985 act was long enough, made up of 27 parts. But the 2006 act, which took eight years to draft, is widely considered to be the longest piece of legislation in English history, amassing 47 parts over 800 pages and comprising 1,300 sections. This is despite the aspiration of policymakers to use the new act to modernise and simplify company regulations.

Of course, ‘long’ does not necessarily mean ‘bad’ (think Tolstoy’s War and Peace or Proust’s A la Recherche du Temps Perdu). But this is not only about length; this is also about add-ons.

Regulators, government departments and agencies produce hundreds of circulars, updates and guidance as addenda to regulations. In fact, the frequency of new issuances, guidance and papers is getting so out of hand that one forum has urged regulators to change their habits.

In May, the Chartered Institute for Securities and Investment conducted a survey of its members and found the level of compliance-related material generated by the Financial Services Authority (FSA) was so great it was ‘beyond the capacity of firms to absorb it’. It found that between 1 January and 16 March 2011, the regulatory body had issued 111 documents, making up 1,929 pages, ranging from discussion papers to enforcement notices.

The explosion in regulation is also about complexity as well as volume. If you try to work through the FSA Handbook online, you can see very quickly the complexities and intricacies of the various rules simply by the level of cross-referencing that is required to get to grips with even the most basic principles. The FSA has done its best to make the Handbook user-friendly and has various guides and tools to assist the novice. Yet the banking crisis still happened.

ComplianceWith length and complexity comes cost. Businesses must employ risk officers and compliance teams – every in-house counsel the Gazette spoke to for this article said their company’s compliance team had grown and would continue to grow. There is indeed a compliance ‘industry’ of providers and consultants to whom organisations can go for training, document management (hence the very large warehouses), auditing and so on. Anti-corruption laws are a prime example and, in the US, the anti-corruption ‘market’ has reached such proportions that Forbes magazine has dubbed it the ‘bribery law racket’.

All this despite the fact governments always vow to cut back on ‘red tape’. This rhetoric stretches back to Harold Wilson’s infamous ‘bonfire of controls’ in the late 1940s through to the 1990s and the establishment of the Deregulation Unit (renamed the Better Regulation Executive in 2005 – note the subtle change of focus there). The coalition government has also issued a number of policies to tackle rampant regulation.

The latter include the ‘one-in, one-out’ rule, which means for every new law introduced another must be repealed. There is also the Red Tape Challenge, a ‘Big Society’ form of deregulation by which the public are invited to suggest regulations for the bonfire. But, so far, according to the initiative’s website, most of the regulations that have been torched appear to be ones the previous government had proposed (such as a new right for employees to request time off to do training or a requirement for estate agents to keep certain types of records).

In March, the minister for employment, Chris Grayling, also announced the Lofstedt Review of health and safety legislation. The idea is to ‘combine, simplify or reduce’ the 200-odd statutory instruments in this area and ‘put common sense back into health and safety, easing the burden on business’.

Impact of EuropeSo the rules are getting longer and more complicated, and governments want to do something about it. But can they? Perhaps it is time to ask ourselves why these regulations are so voluminous, and whether there is anything that can be done.

Many organisations cite the impact of Europe. Clare Belcher, global head of legal at Travelex Currency Services, gives an example: ‘When the Payment Services Directive was announced last year, we had to spend a lot of time understanding it and working out how it impacts on our business, and what product lines of ours were in scope and out of scope.’ And this is just one directive in one sector. All businesses have to go through such an exercise increasingly often.

Moreover, there has long been criticism of so-called ‘gold-plating’ of European directives by UK governments. In a recent statement reacting to the government’s decision to opt only for a 12-week exemption from the full force of the Agency Workers Directive, a spokesperson at the Institute of Directors made a familiar complaint: ‘Ministers have gold-plated this regulation, pure and simple. A 12-week exemption is all very well for big companies, but there is no requirement at all in the EU directive for the vast majority of small and medium-sized firms to be caught by the new regulations.’

The British Chamber of Commerce (BCC), which produces statistics on how much regulation costs business through its ‘Burden Barometer’, also picks up on Europe. In its most recent report, Is regulation really good for us?, the BCC reminds us that ‘the UK enjoys, or suffers, two law-making factories – Whitehall and Brussels’; and later states that ‘most of the cumulative regulatory burden on business, by value, arises in Brussels’.

Yet the Organisation for Economic Co-operation and Development (OECD) will tell you that, in terms of labour protection at least, Britain is the third-least regulated country in the world, after the US and Canada. As Dr John Philpott, chief economist at the Chartered Institute for Personnel and Development (CIPD), explains in his report, The economic rights and wrongs of employment regulation: ‘The volume of complaint … is, at first sight, puzzling given this country is one of the least regulated labour markets in the world.’

What EU law also does, however, is limit the capacity of UK governments to do something about red tape, as David Green, head of employment and pensions at Charles Russell, explains: ‘The coalition government has said it wants to make employment regulations simpler, but that is spin in my view because EU law will impact on this. There are some things – such as changes to TUPE law and putting a cap on damages in discrimination cases – where they may fall foul of EU law if they do try to change them.’

Dr Philpott believes part of the problem with EU law is that it stems from a different root than English law and so feels very alien to UK businesses: ‘EU law is coming to us from a different tradition, which approaches subjects differently. Take the Working Time Directive; there was no tradition of regulating working time in the UK, so, of course, this is very difficult to get used to. Or take agency workers legislation; we take a different view of agency workers – we see them as a potential advantage in the labour market and the EU sees them as suspect.’

Risk aversionIf European law is responsible for the inexorable rise of regulation then there is not much to be done and UK governments are better off fighting their corner in Brussels – and, to be fair, they have tried to do this with some limited success (retaining the opt-out from the 48-hour working week, for example). But it cannot all be blamed on Europe.

A trend towards greater regulation also reflects a society that perceives itself to be risk-averse – that likes to make the uncertain certain. It is as if we are constantly searching for ways to pre-empt Donald Rumsfeld’s ‘unknown unknowns’.

One of the ironies of the regulation debate is that, often, it is the voice of business that comes out against regulation and, yet, what it is complaining about is not regulation per se, but regulation that does not deliver certainty. Companies do not want loose principles or ambiguities, more concise though this approach would be, as they do not want to have to wait for the courts to decide what is ‘reasonable’ in any given situation.

As Sarah Rushton, director of operation support services for Cintas’s UK operations, says: ‘If something is mandatory, it’s okay. That means everyone has to do it. But if the regulations aren’t prescriptive, it’s much harder. It’s difficult to assess risk and there isn’t a level playing field. What we want is certainty above all.’

Green agrees: ‘Our clients are actually extremely good at getting their head around regulations. When clients understand laws and get used to them, they do like the certainty and they don’t like things being changed again. Take the proposed changes to TUPE, for instance. Clients now understand TUPE and don’t have a problem with it, so why make it more complicated by changing it again, particularly if all you are doing is playing round the edges?’

ConsultationApart from being more conservative in our appetite for risk, there is, perhaps, another reason the rules are getting longer and more complex – the number of stakeholders engaged in law-making, particularly in the consultations on proposed regulations, and this includes the legal profession. Of course, consultation is nothing new, but the level of engagement by lawyers, accountants, non-governmental organisations and many others is unprecedented.

Lawyers are becoming much more engaged. A cursory glance at the responses to consultations on a variety of subjects will throw up a hefty number of responses from them. If you look at the guidance to the new Bribery Act, for instance, almost every one of the top 20 law firms in the UK, plus many other smaller firms, responded to the consultation earlier this year. Or try the Law Commission’s work on new insurance contract law. Their consultation attracted 105 respondents and a quarter of these were law firms.

Dr Philpott says the role of lawyers has increased because the legal profession now has ‘a higher profile in society’, and adds: ‘There is a lot of to-ing and fro-ing between the drafters and lawyers, which impacts on law-making, and they are always reflecting outwards the complexity of the state of law and the legal process.’

Because they are good at their jobs, lawyers spot nuances, intricacies, loopholes and potential problems. And they are up front about their role. When City lawyers were interviewed by the Times in connection with the potential drafting of financial regulation in the UK, many argued they should be properly engaged in the process because they had more experience and more technical knowledge than other stakeholders.

In the US, the involvement of law firms in government has reached worrying levels, according to a recent leader article in the Economist, which pointed out that lawyers are over-represented in government, with the president and the vice-president, as well as 55% of senators, trained as lawyers. As a result, it argued, ‘the American legal system is the most lawyer-friendly on Earth. It is head-thumpingly complex’.

But there’s a more basic point to be made here, too. Life just isn’t as simple as it was a hundred years ago; there weren’t any credit default swaps to worry about – and it’s a cross-border world, too.

Alexandra Wrage, president of Trace International, a not-for-profit anti-corruption organisation that helps businesses implement anti-corruption measures, says: ‘One of the main problems for companies is that compliance is inconsistent in different jurisdictions, so companies have to work out which rules apply where – so it all feels so much more complex.’

Belcher agrees and says one of the main hurdles for global organisations such as Travelex now is that regulations – such as the UK’s new Bribery Act – have ‘extra-territorial’ reach. The UK enforcement agencies can look beyond the UK operations of a company to branch activity anywhere in the world, ‘so the scope of regulations has to be radically rethought’.

Fixing problemsAll of these factors converge towards one point: governments introduce regulation as a way of fixing problems – from the Marchioness disaster to Hillsborough, from Northern Rock to, presumably, Southern Cross. In fact, this is what John Stuart Mill said explained the power of government in the first place: ‘The only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others.’

But new regulations can often appear to cause problems rather than solve them, creating short-term inconsistencies and, for the lawyer’s client, frustration.

Sometimes this is purely a drafting issue, as Green explains in relation to the Equality Act, which was intended to simplify the different strands of discrimination law: ‘There is a clause in the Equality Act that appears to rule out solicitors giving advice on the act in the context of a compromise agreement. The upshot is that there is concern such agreements may not be effective. This looks like a drafting error and so practitioners are in a very difficult position. But it does not look as if the government will amend it, so everyone has to get legal opinions on it. From the client’s perspective, it is costly and confusing.’

Of course, regulation is nothing without enforcement and this touches on another great irony; it is often the more scrupulous of the regulated who will be punished the most and the worst offenders who will be untouched.

Wrage explains: ‘One of the most frustrating elements of anti-corruption enforcement is that those businesses that get their house in order – put systems in place, staff a team, audit their operations and do their best to follow the rules – are the ones that get penalised, because, if you take this problem seriously, you will find a minor situation. If you are a multinational with operations all over the world, employing 50,000 people, somewhere there will be something going on.

‘So you go to the SEC [the Securities and Exchange Commission] and voluntarily disclose the information because you have been told that is what you should do, and then you get a big fine and bad publicity – for doing the right thing!’

Finding a solutionSo should a government try to fix all of our problems, however long the laws may have to be? Certainly it takes a very brave government to do nothing. There are a few examples where this is happening on a very small, local scale. For instance, there are specific spaces in various towns in the Netherlands and in the UK (such as Ashford and Seven Dials in London) where there are no traffic laws (no signals, no road signs) based on the notion that people will voluntarily drive and walk more responsibly. Accident statistics in these areas have so far seemed to show this works.

But apart from these rare exceptions, the temptation to fix by prescription is huge because there is often no obvious alternative; a financial crisis must mean more financial regulation. Yet the problem is, history doesn’t repeat itself in the same way. The crisis will be different next time.

Logic dictates that, if over-ambitious banks, sub-prime mortgages and over-the-counter derivatives contributed to the most recent crash, there won’t be another crash if you regulate them. But who really believes that?