I VAGUELY REMEMBER (through the haze of serial hangovers) being lectured as an undergraduate on what makes good law and what makes bad law.
Unless my memory serves me poorly, there was something about there being three tests of good law that were along the lines of whether it firstly conflicts with existing good law, secondly whether it enjoys broad acceptance (in which case adherence becomes the socially correct thing to do) and thirdly whether, if breached, it can be sensibly enforced.
The introduction of the drink driving laws may be one of the best examples in which all three tests were passed. But when dealing with legislation affecting our industry, things become more complicated.
This week the UK government published a paper with proposals for, among other things, the formal introduction of bonus claw-backs. This law would certainly pass the first two tests but fails catastrophically on the third.
Should bonus claw-backs only apply to people working in banks or do they apply to the entire financial services industry? Why, come to that, should the management of a drugs company not be obliged to return its bonus if a drug created under its leadership subsequently proves to have unexpected side-effects that might cost the taxpayer millions or even billions in aftercare by way of the National Health Service? Bankers get treated as though we are the only people in the world to receive cash bonuses.
Also, I can’t help but wonder whether the law can be enforced fairly. Anyone who has stepped on to a London trading floor will be well aware that most of them are true towers of Babel, with traders, salespeople and structurers from all four corners of the globe. In the context of the proposed legislation’s seven-year claw-back, I wonder how the authorities might propose to collect the money if the executive in question has gone home? Or am I to understand that only Brits who stay at in this country can be sure to be tapped while their erstwhile desk-partners get away scot-free?
Most of the securities that were involved in the financial crisis were of the structured variety and, having worked in that area of my former employer’s business, I can assure that, other than a few stray UK-facing salespeople and my polyglot self, there wasn’t a Brit in sight.
There were a few non-doms with British passports but by and large the team was made up of people who could, if someone showed up and tried to reclaim their bonuses, swiftly climb on a plane and fly home. I’d love to see Her Majesty’s Revenue and Customs try to recoup funds in New York or Paris, let alone in Moscow or Casablanca.
I’d love to see Her Majesty’s Revenue and Customs try to recoup funds in New York or Paris
THERE SEEMS TO be a complete misunderstanding by the British political class who don’t realise that London is no longer a financial centre in itself but the geographic location of choice for branches of a global industry.
It enjoys all manner of benefits that have helped it to easily fend off the costly but largely comical attempts by both Frankfurt and Paris to challenge its hegemony.
However, the rising cost of both housing and general living expenses brought on by the influx of millionaire and billionaire tax refugees from countries in trouble along with falling incomes in finance could well have begun to undermine its strength.
As one old Wall Street hand once wryly commented to me: “We have to live where we live in order to work where we work, but we have to work where we work in order to be able to afford to live where we live.”
This equation is beginning to tip against London. Now the government (through the agency of the Bank of England), busy trying to garner advantage in the polls in the run-up to next year’s general election, has evidently decided that another spot of banker bashing would not go amiss.
How the claw-back law would really work is not clear. Can the authorities come back seven years on, repossess the house, have the children put on the street and push a family into bankruptcy because someone in the department that the individual in question once worked messed up before gathering the ill-gotten gains and leaving the country?
I recently lunched with a seasoned City chum who had himself previously spent time with a member of the Treasury team of one of the three leading political parties. My man had pointed out that current legislative developments threatened to destroy the financial services sector in this country. That, the person in question is said to have replied, was exactly what they had in mind. When I heard the story, I thought I knew which party he was talking about. Now I am no longer so sure.
WE HAVE SPENT the past seven years trying to get our heads around the fact that the economy grows only slowly when not enjoying the benefit of reckless lending. Next we could be wondering why it is that the largest single industry in this country is going the way of textiles, coal and shipbuilding.
That said, we do live in the knowledge that no matter how crazy our authorities may be, there are most certainly some in Continental Europe who are even crazier and who will quickly squander whatever fleeting advantage they might be enjoying over London. Global markets need a base in this time-zone and none is better situated than the one we already have. Remember what a flash in the pan the hedge fund rush to Geneva proved to be.
Nevertheless, the claw-back legislation, as far as we have seen what they have in mind, looks to be ill-conceived and will, should it ever see the light of day, most probably crumble like a vampire in full sunlight.
If it is all just an electoral ploy (which I believe it might be), then those in charge may well be playing with fire – and we all know from Struwwelpeter what happens to children who do that.
