Sunday 20 March 2011

Sunday, March 20, 2011 Posted by Jake 3 comments Labels: , , , ,
Posted by Jake on Sunday, March 20, 2011 with 3 comments | Labels: , , , ,

London, New York, and Chicago are the World’s main financial centres. There was a time, only a decade or two ago, when this was principally because of the need to communicate.  The Lloyds Insurance Market’s lifeblood was the stream of insurance brokers walking along Lime Street to sit, in offices and restaurants, with the underwriters negotiating and administering insurance policies. Exchanges from stocks and shares to futures and options involved traders massed together in large open halls shouting deals at one another. The reason for these cities’ pre-eminence was the advantages that came from being at the centre of trading – which once could only be done by being physically there in person. Now your physical presence is no longer required to trade in person. Placing insurance and trading shares, futures, and options is done electronically. Where you are in the world doesn’t matter.

However, the falling importance of physical location has not undermined London, New York or Chicago. New York and Chicago remain locations of choice because they are at the centre of the World’s largest economy. London joins them at the top table because of the promise of pussy-ish regulation. From banking and trading all the way to personal taxation, regulation in London and to a lesser extent in the USA has been bent into a pretzel to be accommodating.

Financial services firms have long since learned that the most lucrative of all their investments is the money they pay in fines, without admitting wrong-doing, which allow them to carry on with their dodgy doings. They regard paying fines as a cost of doing business, just like paying their rent and their electricity bill.

In evidence taken by the US Senate in 2003, investigating dodgy tax evasion tactics, it was stated that a senior KPMG tax professional calculated just how excellent an investment paying fines is.

Even where it comes to aiding the financial transactions of despots and terrorists, the banks are let off lightly. Barclays and LloydsTSB were fined hundreds of millions of dollars by the US authorities for clandestinely processing transactions with banks in Libya, Sudan and Burma. But in each case, the banks were not required to admit to any wrongdoing. Admitting wrongdoing would have triggered further legal sanctions and curtailment of their businesses, which the regulators were keen not to do. US judges rejected and criticised the deals being done with the banks by the US financial regulator, the SEC. Commenting on a deal done by the SEC with Barclays involving a US$298 million fine with no admission of wrongdoing, US District Judge Emmet Sullivan said:

It’s not only the top firms that are let off lightly. Even the pipsqueaks are allowed to turn their trade profitably in the face of regulator action. In January 2008, the FSA  demonstrated where its sympathies lay, when it imposed a fine on Square Mile Securities for mis-selling.  The FSA’s report, included the following comments –

The FSA report continued to say –

According to the FSA report, Square Mile earned gross commissions of £947,307 from “recommending the Securities during the Relevant Period”. And the total fine imposed by the FSA was £250,000.  To be paid in 4 instalments over a year – to avoid unduly stressing Square Mile’s cashflow.

 “Annual income twenty pounds, annual expenditure nineteen six, result happiness.”
Said by Mr.Micawber in Charles Dickens’ novel David Copperfield.

Mr.Micawber’s wisdom was that so long as your income is greater than your expenditure, you will be happy. With an income earned by “failings [that] were widespread and impacted at all stages of Square Mile's sales process” almost four time greater than the FSA imposed fine, the Square Mile’s residents would have been beaming.

In January 2008 the FSA also fined HFC Bank, for mis-selling payment protection insurance.  The FSA report states –

HFC, which sells to poorer customers, is a wholly owned subsidiary of HSBC. HSBC group’s profit in 2006 was over £10 billion. HFC’s fine was just over £1 million. That is equivalent to one hundredth of a penny in the pound. Once again, readers of Mr. Micawber would have been beaming!

As a general statement, the FSA’s punishments have been derisory. Having been shown up as surplus to requirement by the regulatory failure that became the 2008 Credit Crisis, the FSA started throwing its fly-weight around with a steep rise in the fines it was imposing from 2009.

However, a good measure of how much of a deterrent fines are to the Financial Services can be seen by comparing the level of fines with the level of bonuses paid in the City of London.

If you squint very hard, you can just about see a small blip for the FSA fines. Try and use the zoom on your internet browser – that might help, at least for 2010 and 2009.


  1. The last graphic nails it. This is OUR money.

  2. It is like those people who repeatedly drive without insurance.

    If they had to do everything legitimately and pay the going rate like everyone else they couldn't afford to operate, so instead they pay the fine as it is cheaper thus profitable.

    The good deeds should be taken into account, but the punishment should also fit the crime.

    If a slap on the wrist isn't a suitable deterrent it should be followed up with a kick in the teeth!

  3. Why would a government want to do that? The money would go elsewhere along with tax income and the fine income. And all we can ever do is vote out one team for the other and nothing ever changes.


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