March 15, 2010
Over the last few days, the regulation of various types of financial operator and market have come in for attention. Everyone seems to agree, we need more financial regulations.
When I say everyone, I mean everyone in politics…
It is clear that when billions – many hundreds of them – have been used to ‘bail out’ major banks and financial companies, something is wrong and something needs to change. Great! Lets make changes.
However, not many months ago, it seemed clear to many commentators of the stock market that regulators had been too lax in enforcing rules. There was widespread agreement that a ‘blind eye’ had been turned while the profits rolled in. This seemed to be the situation in the UK, in the US and a number of other major economies.
But now, we need more regulations. Why?
As this article from the BBC suggests, the UK Financial Services Authority believes that ‘market abuse’ (things like insider trading) are out of control in The City of London. That isn’t a great thing for a regulator to have to admit…
As this story from last week showed, a conviction for some form of market abuse is rare enough that it actually warrants press attention. If it is so common, why are there so few convictions?
If you make it down to the last paragraph, you will see that while the convicted man was retired, it has not been possible to identify the source of his information.
If people at this level – he had retired 10 years ago and had made it to partner – feel the need for extra cash, what chance the rest? One must presume that having made it to partner status at Cazenove, Mr Calvert probably was not what we might think of as ‘poor’.
So why do we need so much extra regulation when we could simply start with much better enforcement of the current rules?
I have spoken to a couple of people recently – people that I would expect to be informed about such matters – and they really are not sure why the proposed regulations will make any real difference to hedge funds. Are these rules window dressing?
As may be obvious from the way I write, I have worked in the investment industry and hold a number of UK based qualifications from some years ago. In the dim recess of my mind, I seem to recall that the UK financial services legislation amounts to some 9,000 pages. If you don’t have enough rules to regulate a market in 9,000 pages, something must be very seriously wrong. And if you don’t have the resources or backbone to enforce them, you really don’t need any more.
No. Instead I think that these proposals from the likes of Brown and Sarkozy are little more than election stunts to try and make themselves look busy, vibrant and vital. Is that what will fix financial markets?financialguy