Chris Blackhurst: We can't prevent the next economic crisis. But attempts to do so could threaten jobs and research
Midweek View: By wanting to prevent the big boys from having special access, regulators have created another uneven pitch
Chris Blackhurst writes regular columns for The Independent, i and The Independent on Sunday, and conducts weekly interviews for London Live TV. Blackhurst was City Editor of the Evening Standard for nine years, before becoming Editor of The Independent for two years. He was then promoted to Group Content Director, and in September 2014 he took on the multi-media business role. He’s won numerous awards for his journalism.
Tuesday 01 July 2014
Ever since the near-meltdown of 2008, a war has been fought against those thought to have been responsible.
This onslaught has taken many forms: attacks by politicians and the media on bankers' pay; reform of the regulators; new rules on the selling of financial instruments. Anything and everything where the City is concerned is considered fair game.
Will it stop another crisis from occurring? No. It might prevent a recurrence of the circumstances that led to the disaster six years ago. But the markets, institutions and people will have long moved on – next time round, the drama will unfold from left-field, just as it did in 2008, catching everyone unawares.
What will have changed is the introduction of a myriad of new rules and regulations. Memo to anyone considering a career in the City: go into compliance, it's the way ahead, no one will dare challenge you, the pay is great, you get to travel the world going to endless conferences and workshops, you don't take risks and you can go home at night without sweating on a massive position and, unlike pretty much anyone else in the Square Mile, you're guaranteed a job for life.
It can't be coincidence that some of the happiest, contented people I've come across in financial services recently are in compliance. They're in huge demand and, unlike regulators, the other growth area, they're paid well and they don't have to pander to ignorant political masters.
As ever we're taking a hammer to crack a nut, or shutting the stable door after the horse has bolted (you can pick your own cliché to describe the response of the authorities). Something had to be done – doing nothing was not an option – and they had to be seen executing it.
In 2001, Paul (now Lord) Myners reported on institutional investment. One of his key areas for study was commission – how much pension funds were paying their brokers.
Myners found that they did not have a clue. Commissions appeared on individual dealing slips but nobody had added them up. When they did, the figures were enormous – the then Financial Services Authority was asked to count them, and the total, in 2000, was £2.3bn.
Perhaps predictably, some of the Myners Report was enacted upon, while much of it was left untouched. Since then, of course, we've had the credit crunch and the spotlight has turned firmly on the banks.
The Financial Services Authority has become the Financial Conduct Authority and it's introduced rules banning the use of dealing commissions to gain valuable face time with company management. The way it worked was that a fund manager would be granted access to executives at a broker's client. That would help the fund manager with their investment decision and the cost of arranging the meeting would be included in the commission on the share trade.
Not to be outdone, the European Securities and Market Authority's consultation paper on the Markets in Financial Instruments Directive II or MiFID II, has gone further. It bans the use of commissions to pay for face-to-face meetings, conference calls, bespoke reports, investor field trips or market data – any tailor-made research, basically.
The idea is that the commission should pay for the cost of the trade, not for the supply of the information that led to the trade. Martin Wheatley, chief of the FCA, says investors should be confident that the money will be used only to deliver "real value" in the trading process.
That's all well and good. But where does it leave broker research – can corporate brokers ever make serious money out of their research arm ever again? Bearing in mind that at many houses the old 80-20 rule still applies – that 80 per cent of the revenues come from 20 per cent of the clients – it's that 20 per cent that will be affected by this change.
And while the large fund managers can conduct their own research, what about the small managers who cannot afford to set up their own research divisions?
By wanting to level the playing field and prevent the big boys from having special access, the regulators have created another uneven pitch. As for the hedge funds, which would happily pay for preferential treatment, and are in the authorities' sights, they can always move to Switzerland or some other location well away from the restrictions of MiFID II.
So, an extreme, not thought-through reaction, that at best will sew confusion and at worst could see research and jobs under threat. Will it stop another calamity unfolding in the future? Not a chance.
Champagne on ice until we have home-grown film studio
What is it about prime ministers and luvvies? The last lot had an obsession with Britpop and Cool Britannia, timing the rise of New Labour and the party's march to Downing Street with the popularity of bands like Oasis, Blur, Elastica and Suede.
Now, David Cameron is doing the same, holding a party and dinner for the "creative industries" – seemingly loosely defined as some British celebrities who hold National Treasure status, and various studio bosses. This is accompanied by much trumpeting about how brilliant we are, how our movie and music industries are setting the world alight, and much mutual back-slapping, man hugs and kisses all round.
It's true that our movie sets are booming. Pinewood Shepperton, home of Europe's biggest sound stage and home of the James Bond and Star Wars films, has received permission, thanks to Government intervention, to double its facilities.
This year's winner of the best British film at the Bafta awards, and an Oscar nominee for best picture, Gravity, was made entirely in the UK except for one scene. Walt Disney's Maleficent, Warner Brothers' Edge of Tomorrow, and Disney's Guardians of the Galaxy, were all filmed exclusively in the UK.
Now, Warner is expanding its UK operations, building three new stages – bringing its total in the UK to 13, and enabling the company to have four major features in production here at the same time.
Fantastic. But before David Cameron and his colleagues reach for another bottle of fizz, they should ask themselves: where do the profits go? It's all very well being the country that provides the sets, the props, artists and technicians. And there's no doubt that's beneficial for British jobs.
But the real value is in the intellectual property and if the IP does not reside here, the profits do not come here.
The traditional excuse was that the US was such a big market, that the notion of a UK label or studio being able to compete with the giants over there was fanciful. In the digital age, however, it's hard to see how that argument still applies: there's no reason on earth why a British company cannot step up.
That's what the Government should be focusing on – on proving enough incentives for a home-grown firm to break through, and stay there (and not be taken over by a larger, foreign player). When that happens, when the rights are held in the UK, and the revenues end up here, that's when there should be cause for genuine celebration. Cameron should keep the pink champagne on hold until then.
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