Subverting Safer Finance: How the UK holds back global financial regulation

This report argues that the UK is subverting progress towards a safer financial system, and has become a major barrier to international efforts for reform. Compared even to the US, a jurisdiction with a reputation for market friendly regulation, and other major international jurisdictions, the UK is found to be part of the problem in key areas of financial reform, and not leading the search for solutions.

In areas including potentially damaging commodity speculation, the Alternative Investment Market, naked short-selling and the operations of British tax havens, the UK is holding back urgently needed regulation. Subverting Safer Finance finds that:

• London is a major centre for commodity trading, yet instead of demonstrating leadership, the UK is lagging ever further behind the US. And while the EU is trying to support global regulation by raising standards towards those of US legislation, the UK’s response is to block any attempt at reform.
• A London exchange called the Alternative Investment Market (AIM), has pursued a strategy of winning new business by driving down standards of transparency, governance and investor protection.
• The US banned naked short-selling (a form of trading that many argue increases market volatility and instability) in 2008. The European Parliament is seeking to impose an EU-wide ban on naked short-selling. But, the UK government is trying to derail this initiative.
• While the UK claims it cannot influence tax havens, many of which territories are in fact UK Crown Dependencies or Overseas Territories, a past history of intervention suggests otherwise. An HM Treasury review confirms that the UK has reserve powers enshrined in the constitutions of the Overseas Territories to affect and block legislation. The UK also has the power to intervene to uphold ‘good governance’ in the Crown Dependencies. This means that in several cases the UK is actively choosing to not tackle tax havens.

In order for the UK to demonstrate that it wants a to deliver a safer financial system, we believe the minimum necessary actions include:

• Bring standards up to US levels by introducing position limits on speculators in commodity markets and creating a UK equivalent of the US Commodities Futures Trading Commission.
• Eliminate tax havens that are under UK control, and work with the US, the EU and other international authorities to co-ordinate regulation of global tax evasion and avoidance.
• Ban naked short-selling to bring the UK into line with the US, Japan, Hong Kong, India and Australia.