London's Big Bang: Could Labour make the City whimper?
London's financial ``Big Bang'' will be an overnight change much more fundamental than that which hit Wall Street in May of 1975. But big as it is, the coming bang is not the only change visiting the British investment scene -- nor may it be the last: If a Labour government takes power at some future date, a different look could be given to the City, London's financial district.Skip to next paragraph
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Most attention today is centered on Oct. 27. That is when fixed commissions on stock sales will be abandoned, the ``Chinese wall'' separating stock brokers from jobbers will be demolished, and foreign financial institutions will be able to compete on an equal footing with British ones.
``It involves changes on a scale and in a time span that is really quite formidable,'' says Sir Martin Jacomb, chairman of Barclays de Zoete Wedd, a London-based securities company owned by Barclays Bank.
Among other things, the Big Bang will ``do away with complacency in London about financial services,'' he says, make the City more competitive in equity transactions (it is already the world center of Eurobond and currency trading), and ``confirm London's dominance in Euro-markets.''
But how will financial deregulation fare if Britain's Conservative government loses control of Parliament?
The architect of the deregulation agreement -- Cecil Parkinson, former British secretary of state for trade and industry -- told a financial conference in New York this week that, despite fundamental differences between the two big political parties, both agree on the need to open the City to world competition.
The key difference is in the regulatory approach of the two parties. The current Conservative government prefers to see self-regulation by financial organizations, Mr. Parkinson says. Labour tends to favor strong bureaucratic regulation similar to the Securities and Exchange Commission in the United States.
Analysts in London and the US say that if Labour takes control, it is possible it will tighten up on the City and impose stricter regulations from above -- especially if there has been a scandal on the scale of the 1984 collapse of Johnson Matthey Bankers.
Labour might also opt for exchange controls to prevent pension fund and life insurance money from flowing overseas. While many of the other rules in the City would likely remain, exchange controls could dampen the drive of British-based institutions to become active global players.
Although Labour has criticized the Big Bang for being precipitous, Parkinson points out that the deregulatory burst has actually been in the works since 1978, when the London Stock Exchange was brought to court on charges it employed unnecessarily ``restrictive practices.''
Five years of negotiations ensued, and significant steps governing stock exchange membership by British and non-British companies have been phased in prior to Oct. 27.
``It may have looked hurried,'' Parkinson says of the decision three years ago to enact wholesale deregulation. ``But we wasted five years at a time when the City was evolving, the concept of a global securities market was taking hold, and London had the potential to become the third great financial center of the world. We had an opportunity which we were in danger of wasting if we didn't have an international securities market to compete with the other giants.''
Parkinson says the Big Bang ``embraces not only changes in structure but changes in attitude, too.'' He contends that while Labour opposes much of the deregulation and privatization that Margaret Thatcher's government has enacted, ``we are approaching the point where this argument is settled once and for all.''
Labour knows it would be ``political suicide'' to renationalize companies such as British Telecom, he says, because of the popularity of share ownership.
The dichotomy between governmental and organizational policing is evident, too, in the Financial Services Bill, which is due to become law before the end of the year. The bill gives the Securities and Investment Board power to investigate and shut down abusive companies and individuals and protect individual investors (often referred to as one's ``Aunt Agatha from Brighton'').
But the board is weak, compared with the SEC in the US. And the other policeman, the London Stock Exchange, does not have a record of aggressive crackdowns on members who have done wrong.
Even though a Tory like former minister Parkinson favors the self-regulatory approach, he notes that ``if self-regulation doesn't work, something more stringent may be installed.'' A Thursday column