It is that time of year again – the time when bankers and the bonuses they receive for their previous year’s work take centre stage.
Battle lines are being drawn. On one side there is the media running damning stories about huge and unjustified payouts; politicians making lots of noise about not standing idly by if banks do not show restraint. (The failure of Project Merlin, an attempt to get a voluntary agreement on bank remuneration, shows the difficulty of turning rhetoric into reality.) And the public gets ever more frustrated as worries about job security grow and the impact of spending cuts really hits home.
On the other side, bankers try to explain that they are showing restraint and are making genuine attempts to reform remuneration practices, designed to curb incentives to put other people’s money at risk. In addition, European regulators have decided that bonuses paid can be clawed back over longer periods and only 20 percent of the bonus can be paid out upfront in cash.
It is clear there is a very difficult line to walk. While bashing bankers might be popular, the truth is that the City is a significant revenue generator. A report published at the end of last year showed that the Square Mile contributed more than £53.4bn to the Chancellor in 2009/10 – 11.2 percent of the UK’s total tax take. Furthermore, fury directed at banks might make institutions such as HSBC and Standard Chartered follow through on their threats to move their HQs overseas where the tax take could be lower and the welcome warmer.
The uncomfortable (for some) truth is that a strong banking – and by extension financial services sector – is vital to the long term health of UK plc. No doubt this is better understood by Financial Director readers than Joe Public.
But it is not just the banking sector that is going through a period of transition. Right across financial markets, we are seeing huge structural change, with the European regulatory framework in flux. As well as legislation on short-selling and over-the-counter derivatives, the Markets in Financial Instruments Directive – originally implemented in 2007 – is currently subject to extensive review, with far-reaching consequences on how financial instruments are bought and sold.
These changes will have a significant impact on the ability of European financial centres – of which London is by far the biggest – to compete successfully against established and emerging centres around the world. And at the heart of our financial centre are stock exchanges, which have a vital role to play in providing businesses with access to capital at home.
A competitive and thriving City is key to the long-term success of UK plc and has the potential to support a period of sustained economic growth. So whatever changes are brought to bear on the industry in 2011 and beyond, they must be both smart and proportionate.
Nemone Wynn-Evans is chief financial officer of PLUS Markets Group, a London-based stock exchange and a market operator providing cash trading and listing, derivatives and technology services.
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