The City must go it alone

THE notion that the monster new financial services directive from Brussels Mifid II is Europe’s ‘Big Bang is risible. The 7,000-page document does precisely the opposite of Mrs Thatcher’s Big Bang in 1986, which swept antiquated rule-making into the Thames, transforming the face of the City and enabling it to become the world’s biggest exporter of financial services.

In the decade since the financial crisis the banks, exchanges and other financial institutions have been inundated with new rules designed to make the system safer.

Indeed, as chairman of the Financial Stability Board, Bank of England governor Mark Carney has been at the centre of the global effort to promote sound practice.

Britain’s biggest and most global bank HSBC has, for instance, added 1,600 people to its compliance operation in recent years, and now employs 6,000 staff to make sure it meets global and local regulations, at a cost of £2.4bn a year.

The last thing HSBC or other financial players need is another forest of regulations raising the cost of transactions to end-users whether they be businesses or consumers.

The UK may have played a key part in negotiating Mifid II but the last thing needed were rules which add an estimated £2.2bn to compliance costs among the EU’s players. Much of the new regulation is intended to introduce more transparency into financial transactions. That may look to be a noble cause.

But, since the crisis, most over-the-counter deals organised directly between players already have been moved to approved exchanges such as LCH Clearnet, part of the London Stock Exchange.

Indeed, imposing more regulations on clearing is seen as so intrusive that the Bank of England and German regulators got a last-minute waiver until 2020.

The requirement that the cost of research by stockbrokers and fund managers be separated from dealing charges is designed to assist investors. The likely result is that firms may abandon research, leading to less information for investors, reduced competition and additional costs.

The biggest risk for the EU is that the burden of the rulebook may lead major financial players to shift trade offshore.

‘Dark Pools,’ where deals can be conducted without knowing the identity of the counter-party, may be open to abuse as regulators found at Barclays in 2016.

But it was Barclays’ hyped claims for deals in these pools rather than the underlying transactions which were the problem. There is a long history of business being driven overseas by foolish tax and regulation.

London’s leadership as the best place for American multinationals to raise foreign currency came about because of an intrusive tax on foreign currency borrowings in New York, imposed by John F Kennedy.

It led to the birth of the syndicated Eurodollar loans market and fund raising through Eurobonds in London that brought American big hitters to UK shores.

City lobby groups have been pressing for a Brexit deal with a bespoke plan for finance. But there is an attractive alternative.

Instead of having to conform to the bureaucratic nightmare of Mifid II and agreeing to every rule and trading change with Brussels, Frankfurt and Paris, the City could go it alone. The Square Mile is at its best, most innovative and creative as a rule maker rather than a rule taker.

Next please

LORD Simon Wolfson has an endearing habit of hosing down expectations and then producing better outcomes.

He pleased investors with an upbeat fullyear forecast of £725m, in spite of a 7.2pc drop in sales from Next stores. That doesn’t stop him opening new space while rivals, such as M&S, are closing shops.

The big point of difference for Next is its history as a catalogue retailer with great logistics – 45pc of its sales are now online.

Yet the market insists on valuing it as an old-style retailer rather than a digital stores group. Shares in Asos sell on a price-toearnings multiple many times higher.

Time for a major rethink.

Chinese walls

THE Committee on Foreign Investment in the United States has blocked the bid by China’s Alibaba offshoot, Ant, for American payments group MoneyGram – because of concerns about the security of data.

Shame the UK didn’t show the same determination to intervene when Chinesecontrolled Canyon Bridge bought smart UK chip maker Imagination.