What are we talking about here? Protecting the innocent students from being misled or protecting the "licensed" teachers from competition? Whatever happened to the idea of vsiting more than one dojo and selecting your teacher based on your own senses, what you see and feel, what their students can actually do on the mat, how they treat visitors to their dojo, how the instuctor behaves and talks, etc. etc. Yes, I know that without experience its hard to judge, so get some before you commit. A student does not "waste" time studying under a teacher without papers if the teacher can do and teach. They are learning. On the other hand you could end up in a dojo where everyone's grades are accepted but the Budo is still not worth much. I know of one very good teacher near me who stopped grading after his Shodan almost 30 years ago but continued to practise and travel to train with the best he could find (the best, not neccessarily the highest grades). The problem comes if his students want to be graded, where will they go? Will they be laughed at? I don't think so, but they will probably have to pay their "dues" at another school to get graded, and there will be issues of trust, ownership, power and other human problems that will crop up.
Every teacher gets the students that he/she deserves, every student gets the teacher they deserve, it just might take some time. The development of discernment is a real facet of Budo that is too easily overlooked in the supermarket offering of trademarked modern MA.