Regulation » Tax Research UK

If regulation is to work ‘chums’ can’t regulate ‘chums’. Getting tough is necessary

Accountancy, Accounting, PWC, Regulation 3 Responses »

Jan 062012

I’ve already mentioned the derisory fine dished out to PWC that’s in the news this morning. Then I noticed this in the FT:

The £1.4m ($2.2m) fine that an accounting industry tribunal has levied on PwC is doubly notable. First, because it is the largest ever of its kind. Second, because it is disgracefully small. PwC, auditor to JPMorgan Securities, failed to tell City watchdogs that the broker was riskily lumping billions of clients’ money with its own. This represented “very serious” misconduct, according to the tribunal. But the three worthies, led by Richard de Lacy QC, lacked the backbone to impose an appropriate fine.

Do you want evidence that ‘chums’ can’t regulate ’chums’? Then this is it.

This type of cosy regulation is a neoliberal, market based conceit. It’s time for it to go.

The thing about red tape is we really want more of it

Regulation 2 Responses »

May 312011

The Telegraph had an interesting report today:

Vince Cable has warned that businesses could end up with more regulation rather than less from the Government’s Red Tape Challenge campaign.

The Business Secretary said that members of the public and consumer groups were using the Government website to lobby hard for existing regulations to be maintained or increased.

The moves put pressure on the Prime Minister who has pledged to leave office with less red tape on the statute books than when the Coalition was formed. If the weight of public opinion tips in favour of keeping regulations, ministers will feel under less pressure to reduce red tape for businesses.

He pointed to the Red Tape Challenge website and said: “Very perversely we are being bombarded by messages from the public saying please increase regulation.”

Mr Cable said messages from people who had lost “loved ones” in workplace accidents made clear their opposition to any reduction in health & Safety regulations. Consumer groups were also co-ordinating responses on the site, he said.

So it’s not perverse at all: it’s absolutely logical. Regulation has been put in place to:

a) Protect the public good

b) Protect people from the externalities of the market

c) Prevent abuse

d) Ensure people are not oppressed

No wonder people like regulation. People have fought for this regulation, and for good reason. They’re not going to live it up easily.

Please keep defending regulation. It exists for your benefit.

The delicious irony of UBS threatening to move to the UK to avoid regulation

Banking, Regulation, Switzerland, Uncategorized 9 Responses »

May 272011

OK, it is only a rumour, but the Guardian reports this morning that:

UBS could move the headquarters of its investment bank to London to avoid tough capital requirements being planned by the Swiss authorities, according to reports in the US.

A move to London from its Zurich headquarters would allow the bank to minimise the capital it keeps to protect against a repeat of the near collapse it suffered in 2008.

Now I won’t jump up and down with excitement – because for a start this makes clear that UK regulation is not tight enough. But, such a suggestion, and the fact that it can even be made, calls the bluff of all those banks who say they want to leave the UK. Their credibility is shot, although most of us already knew that.

Two things do, however, follow. The first is that the demand for better, tighter regulation in the UK is enhanced. It is obvious that we are still the light touch regime, and that is not good enough. Second, the idea that London is indeed the tax haven capital of the world is in a very real sense also enhanced. Why else would a Swiss bank want to move here? And that in turn means that much more effort is needed to crack open the secrecy of the City of London, and to hold our companies to account before they do untold damage to our economy, again.

Save us from these bankers, fast

Economics, Regulation 11 Responses »

Jul 072010

Global Geo-Politics Net is carrying an important article by David Cronin highlighting the desperate need for a civil society campaign to counter the might of financial lobbying by banks and hedge funds. Besieged by legions of well-funded financial lobbyists (reinforced by columns of financial journalists acting as mouthpieces for the City of London and other offshore financial centres), politicians are fighting an uneven battle to protect public interest from endless lobbying to water-down regulation and protect tax privileges — and there are virtually no organised campaigns to oppose this relentless pursuit of self-interest.

A cross-party alliance of European parliamentarians has issued a call for the creation of an international civil society campaigning organisation to work on systemic financial market problems in the same way that Amnesty International has worked on human rights issues and Greenpeace on environmental issues. Citing Tax Justice Network’s research into how hedge fund activity has been driven by the constant search for innovative ways to avoid taxes, the article explains how the pressure placed on politicians by financial lobbyists threatens to de-rail attempts to regulate against a repeat of the crisis:

"According to the MEPs, the pressure they have been placed under by the financial industry is so intense that it represents a threat to democracy, especially as public interest groups have generally lacked the means or the expertise to mount a robust counter- offensive to the banks’ efforts. "

A major part of the problem lies with the lack of independence of thought within the mainstream political processes. The majority of mainstream political parties, whether in government or opposition, have long since fallen to laissez faire economics. All too often their policy making apparatus – the think-tanks and advisory teams that feed through new ideas – are similarly captured by economic ideas that have failed to protect public interest. In far too many cases these "independent" bodies are funded by vested interests and staffed by secondees from banks and accounting firms: the very people who caused the crisis in the first place. And to make matters even worse, there is a plethora of "independent" academics whose academic chairs are funded by banks and such-like, and who act as hired guns for the vested interests.

An example from BBC’s Today programme illustrates the extent of this capture of political processes. In a short news item about a new report on the affordability of public pensions in the UK, BBC journalists cited two "independent" think-tanks as the source of this "independent" report: who were they? The Institute of Economic Affairs and the Institute of Directors. Objective and politically detached? Both are political lobbyists representing City of London interests.

Completely unrepentant about their role in precipitating the worst financial crisis since the 1870s, and determined to preserve the de-regulated model which has successfully transferred huge volumes of wealth upwards from ordinary people to the super-rich class who operate from offshore secrecy jurisdictions, financial lobbyists are working over-time to bamboozle politicians and re-write laws to suit their purposes:

"MEPs had to wade through 1,600 suggested amendments to the law on that occasion. Although only MEPs themselves can sign amendments, it is common practice for industry lobbyists to act as "ghost-writers". More than half of the amendments in this case were written by the financial services industry, according to Parliament insiders.

The hedge fund industry ‚Äî financial speculators largely based in the City of London ‚Äî has literally been seeking to write the rules it should play by itself. In April, the Parliament’s main committee for economic affairs voted on its response to the proposed law. MEPs had to wade through 1,600 suggested amendments to the law on that occasion. Although only MEPs themselves can sign amendments, it is common practice for industry lobbyists to act as "ghost-writers". More than half of the amendments in this case were written by the financial services industry, according to Parliament insiders."

The world stands on the edge of a precipice. The impetus for reform that followed in the wake of the financial crisis has been slowed by the relentless pressure from financial lobbyists. The burden of paying for the crisis has been almost entirely shouldered by ordinary people. Public and private debt burdens remain high, but earnings for the majority are stagnant or falling (director’s pay being a major exception). The situation will undoubtedly deteriorate as the impact of European austerity packages hits the people in Europe and in other regions that trade with Europe. Unless measures are taken to re-regulate financial services, and especially the crucibles of toxic innovations that caused the crisis in the first place, we are headed for another, even more disastrous crisis in the not-too-distant future. The call from European politicians for civil society action should not go unanswered. TJN, for one, is keen to participate.

Note: cross posted from Tax Justice Network

Health and safety underpins effective markets

Regulation 2 Responses »

Mar 242010

Policy Exchange: Health and safety gone Mad Hatter | ToUChstone blog: A public policy blog from the TUC.

Brendan Barber says on the TUC blog:

Policy Exchange have a new report out today, Health and Safety: Reducing the Burden. It’s about as close to being relevant to the needs of the modern workplace as Alice in Wonderland.

Policy Exchange say:

The health and safety culture in Britain is having a pernicious effect on our lives. Health and safety is becoming a ritual excuse for not doing anything. Health and safety is itself potentially becoming dangerous to people’s health.

Brendan is right to say:

Anyone who seriously believes that there is a culture of over-compliance needs some basic lessons in the reality of working life in the UK. Last year 30 million days were lost due to injuries and ill-health caused by work. And a quarter of a million people were injured at work. These were caused by employers failing to comply with health and safety regulations.

But the issue is even more important than that. Without health and safety we would not have effective functioning markets in the UK.

You would not buy a coffee when out – it may not be safe. Or any food from supermarkets, for the same reason. Or drive a car – which would be a death trap.

The reality is health and safety gives us the confidence to buy. It does not harm markets and private enterprise – it’s the bed rock on which much of it is built.

But such joined up thinking is beyond Policy Exchange.

Heaven help us if the Tories get in.

FSA on defensive over Lehman failings

Accounting, Auditing, Banking, Regulation 4 Responses »

Mar 182010

FT.com / UK – FSA on defensive over Lehman failings.

Good to know I got yesterday’s musings on Lehamn right.

As the FT reports:

UK financial regulators said they had no reason to question the so-called “accounting gimmick” used by Lehman Brothers to flatter its results because the investment bank’s UK subsidiary’s reports accurately reflected the transactions.

Why – because they were correctly reportted on balance sheet under UK GAAP here.

But as they also note:

In the UK, the bank was able to get a legal opinion certifying that the transactions qualified as sales . Lawyers not connected to the transactions said the UK’s definition of sale is slightly less restrictive than the relevant law in the US.

The legal opinion made no difference to the Lehman UK subsidiary’s accounts to the FSA because they were made under UK accounting rules, which require both repos and sales to be reported on the balance sheet, the FSA said. But when the UK accounts were consolidated back to the US, under US accounting standards, known as GAAP, the transactions disappeared off Lehman’s balance sheet, the Valukas report said.

“The balance sheet effect referred to in the Lehman report only occurred in the consolidated accounts which were prepared under US GAAP,” Mr Sants [of the FSA] said.

“This is a matter for US financial reporting standards, not . . . for UK supervision,” he said. “This is arbitrage between US accounting rules and UK law.”

This is exactly as I suggsted.

But Hector Sants is wrong because if accounts can be abused in this way of course it is an issue for UK regulators.

So this should be high on the FSA agenda when its continued existence is confirmed after the election.

Let’s Level The Rules Of Finance

Regulation 2 Responses »

Mar 172010

My latest column in Forbes is here, looking at the issue of EU hedge fund regulation.

As I argue:

Like it or not international finance needs rules and they need to be consistent. Creating competitive advantage by manipulating the rules does not mean there are winners or losers as a consequence – it means there is no game and only losers. Rules are not anti-competitive. Even Friedman recognized that they make free competition possible.

Brussels is saying that real people–the people of Greece and maybe the E.U. itself–are losing out right now as a result of lax financial regulations largely set by London and Washington. The two financial capitals are signalling that they don’t care, but they should. Unless regulations are levelled upwards so that international finance is a game all can partake in to mutual benefit, there would be no game at all–and that would be a protectionist disaster.

One that the so called free marketeers seem to desire.

Stiglitz: regulation has to begin at home

Regulation Comments Off

Feb 102010

FT.com / UK – Watchdogs need not bark together.

Joe Stiglitz in the FT says:

Countries that proceed [to protect their own citizens with strong domestic regulation] will face threats of the kind already received – a rapid departure offshore. But the parts of the financial system critical to the real economy – those, for example, that lend to businesses – are not so footloose. Any cost-benefit analysis of the loss of the gambling casinos offshore would surely conclude that if some other government wants to risk economic instability and big bills for bail-outs to its taxpayers, so be it – our task is simply to prevent contagion from these under-regulated jurisdictions. No country can fully insulate itself, but the best protection is a good regulatory structure at home. The continuing instability in global financial markets should have made it clear that we need that now.

As usual, he’s right.

Osborne reeks havoc before reaching office

Conservatives, Regulation Comments Off

Feb 102010

FT.com / UK – Sants resignation leaves confusion at FSA.

Hector Sants has resigned as chief executive of the Financial Services Authority, sowing confusion about the direction of financial regulation.

The CEO, who will stay at the FSA until the summer, has been outspoken in his criticism of Conservative proposals to dismantle the agency. He described the Tory plan to give the FSA’s supervisory role to the Bank of England and spin out consumer protection responsibilities to a new agency as a distraction that could lead to a “turf war”.

Regulation is not perfect, we know.

Seeking to undermine it before you reach office is a coup few achieve – but Osborne has.

It’s a sign of the mayhem and incompetence to come.

And let’s be honest – how can a man whose sole work experience is a year at Tory Central Office really be expected to have any management competence?