Keeping one step ahead in the financial game
24 October 1995
The Chancellor of the Exchequer announced the launch of the City Promotion Panel in late July, with a remit "to promote Britain's financial services industry".
The Treasury made it clear that Britain meant UK-based businesses; and the panel includes senior executives from Citibank, Morgan Stanley, Nomura and Paribas, chairmen of NatWest and Schroders and other leading City players.
Perhaps the primary function which the panel can serve is to promote a closer understanding between the City and government. The gulf is wider than might appear.
Governments concentrate on a domestic agenda, reckoning they depend on national elections for survival, and that their constituents are moved largely by domestic concerns.
The City, on the other hand, serves a global society, a community in which national frontiers are becoming increasingly irrelevant. It is often criticised for ignoring the needs of domestic customers but this ignores the sophistication of the services it offers and the demands of a growing world economy.
The UK Government is not alone in finding it difficult to adapt to the erosion of national frontiers. The challenge for the Government is to become more "international" itself. This does not mean neglect of citizens, rather a recognition that our economy and UK interests depend on international success.
The transition is already happening. UK Ministers can be found worldwide heading trade missions of "foreign" businessmen. What qualifies them is that they live in the UK and the companies are here. It is part of an inward investment which the City has contributed to.
The transition to internationalism also confronts UK businesses and professionals.
Lawyers trained within a national legal system find it hard to recognise that other legal systems play an important role. The purpose of bodies such as the International Law Association and the International Bar Association, which have London bases, is to bring lawyers of different jurisdictions together and encourage the mutual respect which oils the wheels of international business.
However, the strength of English common law cannot be ignored. More than any civilian system, English law "goes everywhere". An English judge has no difficulty accepting that parties have chosen English law to govern a relationship with no conceivable UK connection - our "long-arm" jurisdiction is notorious abroad.
This dependence on the common law and its relative importance by comparison with statute underlies our attitude to regulation - a key determinant of the City's success.
Unease has surfaced since the liberation of financial services in 1986. It would be incredible if the legal and regulatory mechanisms put in place then were still apt for the massive changes which have taken place. Regulation needs to serve both users of markets and practitioners. Markets must recognise the needs of customers; if they fail, custom disappears. But markets are complex, and regulation which overlaps or conflicts is in no one's interests. This may be an early task for the panel.
A related concern comes from Brussels. The approach of the European Commission to regulation is civilian in character; purpose is more important than the letter, interpretation a matter of scholarship rather than practical experience. Regulations which have direct effect in English law will be applied differently here than in other member states and the fear is that new union directives will damage the City's success by undermining its laissez-faire attitude. A function the panel might serve in this respect is not so much to promote a communitarian approach in Whitehall - Brussels is resistant to national lobbying - as to strengthen professional associations in their non-national lobbying and achieve results in Brussels which do not halt successful development.
There are other challenges which involve the lawyer, for example the vulnerability of international finance to fraud. Whether in its criminal or civil context, fraud is addressed by a national legal system. But fraud today occurs internationally, where national systems find it difficult to penetrate.
Lawyers have two ways to confront the problem - training our enforcement agencies to be more international in their work and finalising bi-lateral and multi-lateral treaties aimed at making extradition, civil judgments and criminal sanctions enforceable abroad. If we want respect for our legal system and its mechanisms we must give it willingly to others.
Effective deterrents should help reduce international fraud but it is the weakness of systems which encourages fraud.
Above all, greed breeds fraud and it is here that we find the key to the City's future.
The City's greatest strength is its long tradition of service to international clients. Greed is self-serving and the antithesis of its role.
Striving for excellence is the challenge which confronts us and the achievement of satisfactory results by our clients produces justified rewards.
Media attention focuses on the pay of lawyers. There are grounds for concern, but the real test of a lawyer's fee is the clients' willingness to pay and come back for more. Beyond this, we should recognise the intense competition between law firms in the City, a competition which has included law firms from all over the world.
Price competition has been particularly acute in relation to transactional work, in contrast to some contentious work.
Sir Alistair Morton was highly critical of the fees Euro-Tunnel has had to pay to keep negotiating with its backers. And huge fees have been paid for other 'crises'; Maxwell, BCCI, Lloyd's, Guinness are examples. But whereas greed may have precipitated the crisis originally, it is important greed does not aggravate the problems left behind.
One of the strengths of the legal profession in the City has been its ability to produce imaginative and effective solutions to problems, however unprecedented and intractable. This requires an ability to see all sides of a problem and see beyond it to where the protagonists need to be after the crisis. Given this, we can expect our clients to remain and the City's global role to be assured.