London First, a pro-EMU
campaigning group, announced in 1999, ‘Most European business
leaders expect Frankfurt to overtake London as a financial
centre within the next five years.’ How could that
possibly be true?
Does it not matter that as one top
Japanese stockbroker told me ‘You can only do local business in
Frankfurt. In London you can trade with the world’?
What is it that we are in danger
of losing? Ladies and gentlemen it is no less than the jewel in
our economic crown.
As a short form, I am going to
refer simply to London or to the City but of course the industry
is spread across the UK.
London is the heart of the world's
financial business and the centre of financial innovation. And
the City itself has no less than 800 years' experience in
providing those services.
I make no apology for listing what
we are supremely good at: we do not often give ourselves a pat
on the back!
Financial services account for
over 15 per cent of UK GDP. They are the single biggest
contributor to our economy. They employ around 1 million people,
including over 300,000 in London. Last year they generated net
overseas earnings of £14 billion.
The City has played a key role in
establishing the euro as a major international currency for
trading and investment. London is the leading centre for euro
trading even though the UK is not in the euro. They could not
have done it without us!
London is the biggest market in
the world for derivatives traded over-the-counter with over one
third of global turnover last year.
LIFFE is the world centre for euro
money market derivatives trading. It is the biggest electronic
The London Metal Exchange is the
biggest metals exchange in the world.
London is the world's largest fund
management centre, with total assets under management exceeding
£2,725 billion in 2000.
London has the most comprehensive
range of specialist maritime services in the world, and despite
Gordon Brown’s best efforts, net overseas earnings are around £2
billion a year.
London is the world's most liquid
spot market for gold, for gold lending and the world clearing
centre for gold trading.
More foreign companies are listed
on the London Stock Exchange than any other exchange including
the New York Stock Exchange and NASDAQ combined.
London is the major centre for the
international bond market.
London is one of the two leading
centres for international legal services, the other being New
York. Five out of the largest ten law firms in the world are
London is the world's largest
international insurance and reinsurance market.
The London foreign exchange market
is the largest in the world accounting for a third of global
turnover, more than New York and Tokyo combined, and is six to
seven times the size of Paris and Frankfurt combined.
And last but not least, there are
more German banks in London than in Frankfurt, and more American
banks in London than in New York.
I think you get the picture!
Why is London pre-eminent? It has
low tax, low regulation, London straddles the world time zones,
we speak English, we benefit from English law, a low level of
corruption and a top quality work force.
Despite all that, our jewel in the
economic crown can disappear with lightening speed if the
Let me give you one little known
but personal example from over 30 years ago. My father was a
bullion broker in the City. On a Thursday the British government
upset the South African government. On the Friday, the bullion
market closed in London as usual, but it reopened on the Monday
in Zurich. That is how fast things used to move. Just
think how fast they move today. Or as the head of my old firm
Morgan Stanley used to say professionals will work anywhere. And
they do – they catch the next plane out.
We have already seen with the art
market what happens when the tax regime changes, in this case
VAT, a Brussels tax. The British art market is on the move from
London and much of it is now in New York.
Today, Britain’s financial service
industry is under attack as never before and from several
directions orchestrated by Brussels under its Action Plan for A
Single Financial Market by 2005.
The plan combines changes in tax,
pensions, regulation and creating one stock market. All these
issues are equally important but today I am concentrating on the
regulatory changes. But may I remind you that we are still
fighting off the EU Savings Tax Directive and trying to divert
its main focus to exchanging information on savings held abroad,
though even that is not satisfactory.
So enthusiastic have we become in
our attempt to deflect the worst of the tax that our man in Bern
is telling his Swiss hosts at every opportunity that they should
relax the famous Swiss confidentiality and provide EU tax
officials with bank details of suspected tax dodgers. Our
ambassador diplomatically says Swiss law is outmoded, immoral
and wrong. This disgraceful state of affairs is all because the
EU withholding tax on savings would severely damage the City's
Eurobond market. And it is setting friends against each other.
So tax aside how far has the EU
attack got? Starting as early as 1964 Brussels has been sniping
at the City. The pace accelerated in the 1980s and 1990s with
nine unhelpful directives particularly affecting insurance and
That attack is now accelerating
The trigger was the twelve years
a take-over directive took in discussion only to be voted down
and out. As a result France persuaded the EU Commission to speed
things up. France wanted a new super-regulator that could
adversely affect the London Stock Exchange and extend EU control
over the City.
The bottom line is, as usual, a
Franco-German stitch up: Frankfurt will eventually get the
markets and Paris will control the regulation. At least that’s
In anticipation a voluntary Europe
wide organisation was set up. The Federation of European
Securities Exchanges is based in Brussels. Since 1999, the
Federation has organised conferences on financial markets, in
close co-operation with the Frankfurter Institute based in
In July 2000 the EU Commission
appointed a committee of so-called Wise Men to examine the
regulation of the securities markets, which rapidly reported
only eight months later. That tells us how badly they need our
A Belgian, Baron Lamfalussy,
headed the Wise Men. He had been on the Delors Committee in the
1980s that led to the euro, and was later President of the
European Monetary Institute, forerunner of the European Central
Bank. A thoroughly sound man!
The "wise men's group" was rightly
seen in London as an attempt to harmonise stock exchange rules.
You may remember that Laurent Fabius, the French Finance
Minister, charged that he had been unable to read a British
counter plan for financial regulation, because the British had
not faxed it until midnight on the Sunday before the initial
meeting, and he did not have a fax machine in his hotel room.
The British plan focused on competition and flexibility and let
each country set its own rules. Some hope of that! No wonder a
Frenchman did not want to read it!
In November 2000 the wise Belgian,
Baron Lamfalussy, and his men decided there should be no
European version of America's Securities and Exchange
Commission - yet. The Wise Men noted the incompatibility of
legal systems and business cultures in different states. Corpus
Juris will of course sort that problem out!
And the mind boggles at the vision
of a European version of the American SEC when it does come,
kicking down doors in London, confiscating documents and
ordering Anglo-Saxon capitalists to answer questions.
report proposed a committee of EU regulators, the European
Securities Committee. And it has recently started work in
principles are established through primary legislation, under
the codecision procedure, with the details left to the new
European Securities Committee (ESC).
unelected committee has legislative power and decides by
majority voting. So decisions may well go against the interests
of some member states - for that read the UK. This is some
Commissioner chairs it and monitors the whole process. Its
members are at secretary of state level.
To maintain a
residual member state interest that committee is advised by the
new European Securities Regulators based in Paris (note, not
even in the same country as the parent committee) and chaired by
a member state representative.
In summary, the
EU Commission runs the first committee in Brussels, which
legislates, and the member states can advise from Paris.
The whole system will be reviewed
in 2004 when member states, and democracy itself, can expect to
be further demoted.
There is no doubt that the ESC is
an embryonic Securities and Exchange Commission. The Stock
Exchange told me that the French are talking very seriously
about this proposal, nicknamed EuroSec, and it is causing
concern in London.
So what is being enacted? The
Lamfalussy Report laid down a 4-stage procedure for implementing
42 items of securities legislation by 2004 from the principle to
The four most important directives
out of the current 42 are:
1 The Investment Services
Directive is rightly called the constitution for the capital
markets of Europe. This key directive upgrades a previous one
and new proposals are due out this month. It will give market
operators a passport or licence to go anywhere in the EU to do
business and involves harmonising standards. There is of course
concern in London that one size does not and cannot fit all.
2 The Prospectus Directive applies
to issuers wishing to raise money – the lifeblood of the
financial exchanges and why they exist in the first place. The
principal is that if you wish to raise money you should be able
to go anywhere to do so. In fact the EU is proposing that you
will have to go to your own country first. No longer will you be
able to go anywhere that would suit your company and your
shareholders which British companies do today. So we are going
The City thinks this is contrary
to an Anglo-Saxon free, flexible approach and we don’t need it.
3 The Market Abuse Directive
(aptly called MAD) seeks a common approach. We in Britain are
content with our system especially since the FSA was given more
powers this time last year and our system is sophisticated. The
new directive is likely to be finalised by the end of this year.
Unfortunately Brussels has got an attack of anti Americanitis
and specifically Enronitis and is trying to include research
analysts in what should be a simple directive. It will be
complex and retrograde.
4 The Regular Reporting Directive
concerns information companies put out to investors. We in
London have a very sophisticated system enhanced again at the
beginning of this year. On top of the twice-yearly company
reports all companies can put out ad hoc alerts via
screens round the markets, and to individual investors via email
alerts. In that way price sensitive information gets out quickly
companies have no history of being good at putting out price
sensitive information on an ad hoc basis – they have no
flexibility - and it is to that level they wish to reduce us. So
quarterly reporting is likely to be introduced which will be
more costly and less flexible - somewhat like the US. Again
With these four directives, and
the other 38 in the pipeline, the EU expects that there will be
fewer markets and ultimately one market, an EU market.
Nor is this all. You would think
that such a great success story as the City would have few
serious detractors within, only those trying to make it even
better. Unfortunately there are Quislings. Not only are some of
the banks like Deutsche Bank firmly on the EU side, as we would
expect, there is now a branch of the Britain in Europe campaign
in the City set up just over a year ago with over 50 members on
its council. Many superannuated politicians now have
remunerative and influential positions in the City.
Here are just a few of the old
favourites active in the City in Europe:
Lord Brittan and Lord Tristran Garel-Jones at UBS Warburg; Lord
Tugenhat Chairman of TU Fund Managers; Lord Howe at JP Morgan;
Peter Sutherland Chairman of Goldman Sachs; Lord Dick Taverne,
Chairman of AXA, and Adair Turner, Vice Chairman of Merrill
Lynch Europe. Interestingly the Chief Economists of both KPMG
and PricewaterhouseCoopers are both members. Perhaps they are
anxious for the many lucrative contracts put out by Brussels.
In conclusion, ladies and
gentlemen, we in Britain are being lined up to take the
financial strain from the struggling German economy. And French
and German envy and their need to dominate and control are
paramount. As a result we will be very second rate, on the
fringes of Europe.
I am sad to say as a Conservative
that my party in Strasbourg not only voted for the Single
Financial Market, but in speeches enthusiastically supported it.
There can be no excuse for
cheering at the destruction of the City of London.
Lindsay Jenkins, London November 2002
Lindsay Jenkins is the author of
Britain Held Hostage, The Coming Euro-Dictatorship (foreword
Frederick Forsyth) and The Last Days of Britain, The Final
Betrayal (foreword Lord Lamont of Lerwick)