City must stop making noise just for attention
As regular readers of this column will know, the City of London is acutely aware of the impact that any proposals emanating from the European Union may have on our international competitiveness.
But, like the boy who cried wolf, we must guard against merely making noise in order to attract attention.
Constantly issuing shrill objections to EU proposals based on a natural aversion to European regulation – the UK is already regarded as a reluctant outsider by some of our European partners – rather than a sound analysis of the potential consequences is clearly counter-productive.
The widespread anger that greeted the European Union’s new rules on bank bonuses is, I fear, a case in point.
Having read the proposals in detail and having met with Commissioner Barnier in Brussels last week, I feel the threat these proposals pose to the UK financial services industry has been overestimated.
Banks in the UK have already gone to great lengths to meet Basel and G20-agreed standards and many of the institutions I have spoken to claim the FSA’s approach is tougher than the EU’s new rules.
The fact that other countries in the EU have committed to following our lead is to be welcomed but the real dangers lie in the global marketplace.
With many other G20 members yet to outline any kind of concrete proposals – the US has issued guidelines but has shown little inclination to legislate on this issue – there is a danger that the EU rules will not only fail to eliminate the risk taking behaviour they are meant to target, but will also place our international competitiveness in serious jeopardy.
This would be particularly true if the rules were applied to Hedge Funds and Asset Managers based in the UK – the City is home to 80 per cent of the EU’s Hedge Fund industry – where the impact could be disastrous. Fortunately, and contrary to many recent reports, there is no clear indication that any such action will be taken.
And from my initial discussions with the Treasury, it appears that the FSA – which thanks to a key clause in the text will have the power to decide the degree to which the proposals can and should be enforced against non-credit institutions – will not extend these rules in this way.
It is much more likely that remuneration for Hedge Funds and Asset Managers will be covered by the parallel, less onerous and decidedly more flexible requirements contained in the AIFM directive.
Stuart Fraser is the Policy Chairman at the City of London Corporation