Hey, New Yorkers! We know you don't like our British ways, don't get our sense of humor and think we hide our arrogance and villainy behind our Old World accents. So here's a message from London in a dialect you guys should understand: Enough already!
Rep. Carolyn Maloney (yes, of New York!) tells a congressional hearing into regulatory failures that "it seems that every big trading disaster happens in London." In the same meeting, U.S. Commodity Futures Trading Commission Chairman Gary Gensler (OK, he's from Baltimore) talks of a "London loophole" and opines that U.S. firms, such as the JPMorgan Chase & Co. branch in London, were set up to find "lower regulatory regimes."
And now Benjamin Lawsky, the New York superintendent of financial services, accuses our hitherto untouchable Standard Chartered plc of hiding $250 billion of transactions with the Iranian government. He refers to it as a rogue institution whose behavior has left the U.S. financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes.
Is it any wonder our bankers, regulators and politicians are more than a little angry?
Because what we see from here is not just a parade of half-truths and prejudices, but an attack on London itself, on the strength and integrity of our financial services sector as a whole, and on the City of London's global leadership in derivatives and the money markets. It looks as if New York is taking its revenge for all those years before the financial crisis, when London promoted its "light touch" regulatory model as the perfect antidote to overregulation and Sarbanes-Oxley in New York. London set out to take business from Wall Street back then. Now New York, willfully ignoring the sea change in the City's regulatory culture over the past four years, is taking no prisoners as it campaigns to win back the business.
Let's take a look at some of those accusations. Every trading disaster in London? Despite the obvious exception of Société Générale SA rogue trader Jérôme Kerviel, who was based in Paris, it is true many disasters have happened in London. The lion's share of global derivatives trading takes place in London. Statistically, you would expect a lot of the bad stuff to happen here. But Ms. Maloney's outburst was sparked by the London Whale, Bruno Iskill, the JPMorgan trader who destroyed the bank's air of invincibility from the heart of its London operation. Yet the U.K. office was a branch of the U.S. bank in London, not a U.K. subsidiary, and, as such, was subject to U.S. regulation and the oversight of U.S. regulators. Why should London take the blame?
By contrast, HSBC Holdings plc's laundering of Mexican drug money took place in the bank's U.S. subsidiary, not a branch of the British institution. It was therefore subject to U.S. law and U.S. regulation, though you could reasonably argue the bank's culture had its roots in London, just as JPMorgan's culture is largely determined in New York.
And what about Goldman Sachs Group Inc. and its brush with U.S. regulators over "Fabulous Fab" Fabrice Tourre and the bundle of synthetic collateralized debt obligations known as Abacus 2007-AC1? The rights and wrongs of the deal aside, the fact is Tourre was based in London when Abacus was marketed. But regulators here point out that the man and the controversial CDOs were already being investigated in New York before he transferred to London -- and Goldman Sachs was subsequently fined for not informing Britain's Financial Services Authority of this fact when he was applying for authorization to work here.
As for the subprime debt that infected Europe through the sale of CDOs by American bankers who thought it smart to sell such packages to banks and institutions less clever than themselves, that was made in the U.S.A. It was the product of what most people here would consider ruthless American culture.
Of course, there has been plenty of self-flagellation by British media and politicians too. We know we did bad stuff, especially in the days when even stiff City gents let down their guard and crowed about the superiority of light-touch regulation. We were shocked by the revelations about Standard Chartered and its ilk, even while we were angry that it was being treated as guilty until proved innocent.
But the light touch is gone. The U.K., along with the rest of the European Union, now lives by much stricter regulation, increasingly directed from Brussels and then "gold-plated" by British regulators who want to set the bar as high as anything to be found in Dodd-Frank.
In the words of City of London Policy and Resources Committee Chairman Mark Boleat, "Revisionist efforts to claim it was all London's fault do not wash. They risk driving a wedge between the world's two leading financial centers."
Or to put it in even simpler terms: Enough already!