I caught a worrying article from The Times about the London Stock Exchange the other day (The London stock market needs life-support). The UK financial industry is usually presented as the jewel in the crown and there is no doubt it earns a lot of money for this country and for the Treasury. We benefit a lot as taxpayers. Without it we would be paying a lot more tax. However, parts of it have shrunk considerably relative to the size of the world market. Instead of growing at the same rate The London Stock Exchange (LSE) has got smaller since 2007.
These are direct quotes from the piece (with added emphasis):
"Over the past 15 years, London’s share-trading business has plummeted. The number of companies listed on the London stock exchange has dropped by two-fifths since a peak in 2007, and the proportion of the world’s equities from a tenth to more like a thirtieth. The entire FTSE 100 index is now worth about the same as Microsoft.
"Brokers are heartened by a flurry of company listings this year but it is a global phenomenon in which London has enjoyed only a small share. London’s proceeds from initial public offerings in the first nine months of this year have been half Hong Kong’s, two fifths of Shanghai’s and an eighth of New York’s. They’re less even than Shenzhen’s, a place that was a building site at the time of the Big Bang.
"In part, this is the inevitable consequence of Asian economic growth. The announcement in September by the Pru that it would raise $2 billion (£1.48 billion) on the Hong Kong stock exchange rather than in London was just another move in its shift towards Asia, as was the decision by BHP, one of the world’s biggest mining firms, to give up its listing in London to concentrate on Sydney."
The figures are stark and came as a complete surprise to me.
The journalist who wrote the piece, Emma Duncan, puts some of the blame on Brexit and the sheer uncertainty it creates. She also says the LSE's 'archaic rules' need to be 'relaxed.'
Yesterday, perhaps in answer to Ms Duncan, Rishi Sunak put out a badly drafted press release about shaking up the industry with a second ‘big-bang’. It looked like a rush job. The government intends to sweep away all EU financial services law and let the regulator create the industry’s own rules.
This is the key part (again with added emphasis):
"While the UK was a member of the EU, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority's (PRA), part of the Bank of England, ability to determine the most appropriate regulatory requirements for UK markets was constrained by strict requirements to apply EU rules.
"The proposals set out today will facilitate the repealing of the majority of retained EU financial services law that is no longer appropriate for the UK, and give the UK regulators the powers to replace the law with their own rules, resulting in an adaptable and dynamic UK regime supporting the UK’s commitment to high standards of regulation in the future.”
It may result in an “adaptable and dynamic “ regime but it looks like another financial crash in the making.
On Twitter, Ian Fraser, author of Shredded: Inside RBS The Bank That Broke Britain, posted this with quotes from his book:
A form of regulation which was entirely predicated on New Labour and H.M. Treasury's then obsession with “competitiveness” i.e. winning business including derivatives trading and IPOs etc from New York (See Shredded excerpts). Talk about lessons unlearned. pic.twitter.com/9larQCbayq
— Ian Fraser (@Ian_Fraser) November 9, 2021
"Thanks
to Blair’s calculated lowering of the regulatory bar, London became a safe
haven for some mind-numbing financial engineering and creative accounting, much
of which would have spelt jail terms for its perpetrators in the USA."
I am afraid this is going to end badly. UK governments, usually Conservative ones but Blair also to an extent, have this belief that to succeed an industry needs to have skimpy regulation which allows businesses to be ‘creative.’ They get this message from the businesses, not from the consumer.
But regulations are created for a reason. Banking is an international activity and needs global regulations. As the tweet and the press release both make clear, the US has strict regulation and so does the EU. What possible benefit can we get by circumventing American and European rules except to attract even more dirty money and allow a lot of dodgy trading that hardly anyone understands?
The last time there was a financial crash in 2008/9 it was the taxpayer who bailed the banks out since they were deemed to important to be allowed to fail. If that is true, they need to be well regulated.
The European Central Bank is already increasing pressure on financial institutions to transfer UK staff and assets to the Continent after many of them put off moves because of Covid. Diverging regulations is not going to help.
Geoffrey Cox
The former Attorney General is in the news again this morning for doing what Owen Paterson did, earn a lot of money from a second job while using his Commons office to conduct private business, something expressly forbidden by the MPs code of conduct rules.
It raises the old question about whether or nor MPs should be allowed second jobs. Personally, I think not, at least not paid ones. If they need to do work to keep up some professional qualification they can do it voluntarily as I'm sure some already do.
I am not against paying them more but being an MP is, or should be, a full time job.
What men like Cox and Paterson want is the status and the ability to dip in and out of parliament to influence things when it suits them. Cox is said to have earned £900,000 last year. His MP salary is chickenfeed by comparison, no wonder he doesn't care to attend too may constituency surgeries. Why would he want to bump into a poor man?
A lot of MPs are multi-millionaires and one wonders how that affects the way they deal with people earning £12,000 a year or how they vote on financial matters. Faced with the choice of them or their constituents bearing the burden of higher taxes, one suspects they might not be altogether as impartial or altruistic as you would want.
Or am I being too cynical?
