The Financial Services Group of Livery Companies asked me to provide an inaugural FSG Lecture in memory of its Founding Convenor, Jeremy Goford, Past Master Actuary“London Forever! Reality or Rhetoric?”  I was pleased to deliver it on Wednesday, 20 September 2017 at
Mercers’ Hall, London.Though I met him late in life through the livery movement, Jeremy and I enjoyed many conversations and disputations on the auditing, accounting, and actuarial professions, especially their use of numbers. Jeremy’s love of our City was palpable.  I was delighted that the Financial Services Group of Livery Companies chose to honour his memory with this inaugural lecture,  While you can read the full transcript, with slides – Jeremy Goford Memorial Lecture – London Forever – Reality or Rhetoric 2017.09.20 v1.3

a summary was published in Fintech Finance on 25 September, reproduced below:

London Forever! Reality Or Rhetoric?

This month, Z/Yen Group, published the 22^nd edition of the Global Financial Centres Index.  GFCI 22 showed almost all major financial centres following the downward lurch of London and New York in GFCI 21.  In the top 20, only Frankfurt rose, quite significantly due to many London bank announcements of headquarter moves.

Finance only exists to support the ‘real economy’ of commerce and trade.  This telling tumble among financial centres is due to fears over trade, not finance.  ‘America First’, isolationist rhetoric damages perceptions of future US trade, while Brexit rhetoric harms perceptions of UK and European trade.

With so much changing, it is right to ask whether London will forever be the premier global centre for professional, business, and financial services.  Financial centres do rise and fall, from Amsterdam to Izmir to Zanzibar.  The 1375 Catalan Atlas of the known world by Abraham Cresques of Mallorca has an inscription: “This lord is Musa Mali .., so abundant is the gold which is found in his country that he is the richest and most noble king in all the land.”  Musa hailed from Timbuktu in today’s Mali.

London’s five centuries of success are due to a sustained confluence of several factors, the ‘accidental’ ones being maritime location, early infrastructure, Continental wars, and the rise of the USA over the past century.  Our index comprises well over 100 ‘intentional’ factors, but I would emphasise the business environment, a trading culture, and the rule of law.   However, people like simple answers, not statistics. So just two things, structural intensity and fair treatment.

All cities are intense, but structural intensity is special to the City of London.  With only 9,000 residents and 450,000 commuting workers, it’s a 98% chance anyone you meet on the street is working.  And Crossrail’s success will raise that chance to 99%.  A temperate climate, twisting alleyways, and numerous drinking places ensured that from the time of the Tudors financial workers met each other frequently.  From pubs to coffee shops to Americano & Cappucino networking centres, supplemented by air transport and IT.

While the UK’s £61 billion trade surplus from financial services is exported via electronic pipes, deals need face-to-face trust to start, and often to complete.  We need to keep raising that intensity of contact as the City of London Corporation is doing by planning for significantly more pedestrians.  Video-conferencing supplements deals, but we still need to meet, often unplanned.

The belief that all comers will be treated fairly has been a London success factor since the 1290 mistake of expelling the Jews.  London’s subsequent welcoming history needs no recounting, from Lombards of old to welcoming back the Jews in 1655 to today’s Syrians.  All were increasingly treated with the same commercial rights as Englishmen.  Rule of law is crucial, but long before anyone goes near a court, any nation that wishes to prosper must trade from an open and competitive environment.  Competition needs a well-educated populace with a state sector preventing cartels, barriers-to-entry, information asymmetries, and agency problems, while not crowding-out markets.

If we get our own house in order, trade will come.  Brexit doesn’t change the basics.  You can’t be an international centre without international people.  Successful people want to live in successful places.  Successful places are cosmopolitan.  Reputation is vital: 20 years to build and five minutes to ruin.  We have problems certainly.  If Britain is open for business, try opening a bank account.

We have problems certainly.  If Britain is open for business, try opening a bank account.  With or without Brexit, we need to stimulate investment in quality education and training, health, infrastructure, broadband; sort out the airports (plural), make the nation as ‘visa less’ to get to as possible, make financial account-opening a one minute process, create a competitive housing market, simplify the tax system, and so on.  Brexit adds the complexity of ‘transition’ being woefully unclear, ‘trade’ structures breaking down, and welcoming ‘talent’ uncertain.  So we need swift decisions on timing, on terms-of-trade, and talent, for example stop prevaricating on EU nationals’ and students’ status.

Our reality must rise to meet our rhetoric, but it was ever thus.  In the history of London we see the truth of Aldous Huxley’s comment, “The charm of history and its enigmatic lesson consist in the fact that, from age to age, nothing changes and yet everything is completely different.”  Making London a great place to live solves most problems.  We need to be honest about our faults and not let false rhetoric impede fixing them.  We are deficient in some areas, but not desperate; in danger of having our Emperor’s clothes disrobed, but with time to knit some new garments.

We’ve been being told for well over a year what we supposedly voted for in a non-binding referendum.  Whatever, the vote was certainly a vote for change.  Quality guru W Edwards Deming sets a low bar for the lazy: “It is not necessary to change.  Survival is not mandatory.”  I am sceptical about claims that we businesspeople will find fabulous fortunes hitherto overlooked in far-flung foreign lands, but I am very positive the closest opportunity is change for the better at home, toward improved structural intensity and fair competition.  Londoners are certainly not lazy.

Trade reaps economic benefits from specialisation and comparative advantage.  Trade creates prosperity, shares success, and enriches our environment.  Trust holds all trade relationships together.  The clearest sign of trust is that people want to live and work in London and the UK.  If we keep that, we keep everything, including the top spot a century from now in Global Financial Centres Index 222.

EU Referendum – Strategy Thoughts

À La Recherche Du Temps Trouvé

For many months we have been discussing the EU Referendum.  Since 24 June we have been discussing even more fervently the result, to “Leave”.  To get the obvious question out of the way, yes I voted “Remain”, though recognising the need for EU reform, which still stands.  Now, our old positions so obviously need to be put behind us.  We all recognise the need to work together with others, going forward to create our common wealth rather than dwell on pre-Referendum days.  Personally, I turn to the question, “What Did You Do In The Brexit Daddy (or Granddaddy)?”

Since 24 June, the magnitude of change that the result may have unleashed is only beginning to dawn upon us.  The EU Referendum appeared to hinge around three core issues – sovereignty, economics, and immigration.  The ramifications of the result have destabilised the established UK political parties and perhaps the system, caused financial turmoil worldwide, and encouraged further changes across Europe.  But where there is change there is opportunity.

The opportunity to make major realignments in sovereignty, economics, and inclusion are real and potentially very positive.  We have the opportunity to consider significant improvements in the structure of government, taxation, regulation, immigration and visas, infrastructure, international relations, and much more.  It is heady, and perhaps dangerous, and an opportunity to improve things that rarely passes by.

This letter to The Economist on 9 July is funny, and I’m sure self-aware:

A new entry for the Oxford English Dictionary:

Plebicide n. the self-inflicted ruin of a nation’s prospects or interests via a reckless act of direct democracy.

BRUCE STEEDMAN
St Helier, Jersey

‘Unity and Trade’

The City of London may have an important role in helping to unite the nation, and unite the nation with the world.  If we want to take bolder steps, we could create a more prosperous future for all.  We also need to replenish our reserves of goodwill.  I might emphasise two points for us, ‘unity’ and ‘trade’.  The nation needs to be seen abroad as open, tolerant, and tolerably united.  That unity may mean pointing harder to the City of London’s millennium-old role in forming new businesses and trade, rather than its recent (and in my opinion, inaccurate and unfair) association with a UK bank oligopoly.  Any nation that wishes to prosper must trade from an open and competitive environment.  Competition means that the state sector needs to be modest (taxation under control), that education is paramount, and that cartels, barriers-to-entry, information asymmetries, and agency problems are avoided.  Trade is the gateway to reaping the economic benefits of specialisation and comparative advantage.  What would constitute some bold steps? I thought I might note a few below.

Immediate

It has been disappointing to see how slowly so-called ‘leaders’ have come forward to recognise that EU nationals are valued members of the national community.  There have been some honourable exceptions, most notably the Mayor of London.  It has been heart-breaking to see the scale of hate-crimes the result has encouraged.  Things we could consider doing:

• provide a clear statement of how much we value the EU nationals who are members of our community. We could back that up by being more public about encouraging them to apply for the Freedom of the City, noting how welcome they are.  We could encourage the government to make a clear ‘for life’ visa statement on resident EU nationals;
• provide a clear statement to firms of our (City) goals in any negotiations;
• work hard to get a pan-party delegation to negotiate – http://www.theirishstory.com/2011/12/06/today-in-irish-history-6-december-1921-the-anglo-irish-treaty-is-signed/#.V3jVL7grLGg – so that the end of negotiations is the end and not the beginning of a rejection of any compromises;
• work hard to assemble a business delegation supporting the pan-party delegation.

Sovereignty

The Guildhall Heritage Gallery currently displays a letter from John Hancock to John Wilkes, Lord Mayor from 1774-1775, that reminds us that the City of London has traditionally played a role in using its sovereignty to advance wider causes, often to the great long-term benefit of all.  Things we could consider doing:

• connect harder and faster with the Commonwealth using our connections with the Commonwealth Enterprise & Investment Council and Alderman Baroness Scotland, Secretary General of the Commonwealth – should the UK make a more material contribution to the Commonwealth budget (reminder, circa just £46 million annually for the entire budget not the UK’s contribution – less than the not-so-faithfully represented £50 million per day to the EU) – make the Commonwealth Heads of Government Meeting in 2018, and the run-up ahead of time, ten times the scale of the one in Malta last autumn;
• work harder and faster with the UN on things such as the Sustainable Development Goals via the Business & Sustainable Development Commission;
• connect with the nations of Scotland, Wales and Northern Ireland;
• connect with the forgotten – Alderney, Gibraltar, Guernsey, Isle of Man, Jersey, Sark, the Overseas Territories who are truly confused by Brexit and what it means for them;
• use our convening powers – perhaps banquets for some of the segments above, or special dinners for world trade, or European financial services;
• perhaps we could even be assertive and play a direct role in the re-regulation of financial services, supporting the return of voluntary standards markets. Could the City sponsor a new financial services regulator for global voluntary standards markets in areas like KYC/AML/Sanction or professionalism working alongside the prudential and compliance arms?

Economics

It’s not scare-mongering, it’s real – we will lose some significant financial services business to other European centres.  Our core problem is now how we’re going to attract new business.  As Z/Yen compiles the Global Financial Centres Index, from our relationships with other financial centres I know that several to many have been in London selling their jurisdiction to firms who need to leave – “just too many moving parts” one US firm said to me.  Things we could consider doing:

• picking a European financial centre that we think is City of London friendly (Dublin, Amsterdam, Vienna, Hamburg, Milan?) and working with it for the smooth transition of businesses, assisting them with ‘brass plating’ (perhaps using Crown Dependency access too) so that only HQs need move, and at some point some smooth transitions back, mostly from one or two places;
• tax – our Achilles heel going forward as it is the basis of the money-laundering allegations and increases the complexity of current regulations. A radical move towards a UK land value tax (a GLA interest as well) and a consumption tax (now possible as the VAT regime is moving to a UK VAT regime) could mean the abolition of corporation tax (more realistically setting it at 0%), the removal of income tax, a streamlining of the benefits system (see identity below), perhaps even with immigration control the introduction of a universal minimum income that could work.  Bold statements on tariffs, i.e. zero, could establish London as the global trade centre (interestingly, in 1960 Hong Kong’s GDP/capita was US$429, equal to Jamaica and below Turkey, Greece, Israel, and many others – with effectively a nil corporation tax);
• to prevent further losses of information and finance businesses, sign up to be the gold standard General Data Protection Regulation despite being outside the EU – analogous to the Maltese strategy of being the first on compliance with EU financial regulation;
• implement the ‘Open Data’ policies forcefully to create business and a more open trade culture;
• consider a ‘financial services free trade zone’ for London or parts of London and the UK;
• develop further the City of London’s UK SME work even wider in sectors such as media, film, shipping, health, or biotech;
• perhaps be bold and reach out with suggestions (though some months hence) of recreating the Common Market afresh alongside EEA;
• perhaps be bold and reach out to join other regional trade bodies directly, TTIP, TTP, Mercosur with some unilateral guarantees, e.g. “no tariffs, ever”, etc.;
• consider tactical moves such as encouraging the old P&I Mutuals (Protection & Indemnity) to return to the UK by reversing the early 1990’s capital regulations;
• on being ‘green’, issue Environmental Policy Performance Bonds;
• on financial stability, implement Confidence Accounting;
• on infrastructure, sure Heathrow, now why not Gatwick too, and any other private entity that wants to take risks on infrastructure for future reward;
• turn the Intellectual Property Office into one with teeth:

Inclusion

As an immigrant myself several times over, I feel this is the hardest area.  The spirit of the 2012 Olympics was that London was the world’s city, the heart of the global community.  Our focus here should be on simplicity and speed.  Things we could consider doing:

• become the global centre for work on the global identity problem;[1]
• encourage the government to be bolder and go visa-less where possible, go electronic everywhere – a global financial centres needs global cosmopolitan people – and consider a ‘London Financial Services’ visa;
• encourage the government to emulate immediately leading jurisdictions with proper electronic identity systems, Estonia being foremost, i.e. based on mutual distributed ledger (aka blockchain) technology (if you wish to see such a system on my mobile, built with PwC, just ask). Such a system could be more aggressive programme for Gov.UK Verify and:
  • help ‘prove’ that immigration and visa targets are under control;
  • cut $3bn to $5bn from know-your-customer, anti-money-laundering, and ultimate-beneficial-ownership processes in banking, insurance, and investment management, thus making London more competitive rapidly in financial services;
  • having our regulators take the KYC/AML suggestions further, i.e. surcharge those who are non-digital and use paper;
  • setting a stiff national KYC/AML target, e.g. an account opened within three days or a valid reason given;
  • create new global identity businesses in London;
• establish a tradable route to immigration, i.e. a firm can swap one national for a UK national elsewhere in the world;
• get a clear message on university students coming to the UK out quickly – perhaps reverse the decision of a while back and allow students to stay for up to two years after a ‘proper’ graduation;
• guarantee university places to overseas students with an insurance guarantee to cover courses being pulled or visa problems, thus enhancing the UK higher education brand.

Conclusion

The idea of listing the above ideas is not to bring chaos into disorder.  I would hope that some of the above thoughts spark further thinking.  I recognise that it is a long walk from a set of thoughts, to good ideas, to implementing just a few well.  But we do have a heck of an opportunity to implement perhaps some special few and perhaps explain to our children and grandchildren that we did do something for City and Country in the great EU transformation.  Anyway, “let’s be optimistic, pessimism is for better times”.

[1]  About 2.4 billion people worldwide lack official identification, about 1.5 billion over the age of 14.  While they certainly know who they are, they are excluded from market economy property ownership, and frequently free movement, social protection, and empowerment.  They cannot ‘prove’ their existence to the satisfaction of society’s registries.  Lack of official identification increases remittance costs, corruption, and crime.  Insightfully, United Nations Sustainable Development Goal 16 “Peace, Justice And Strong Institutions” contains target 16.9 to “provide legal identity to all, including birth registration, by 2030”. See also Z/Yen’s work on IDchainZ.

Published: Thursday, 23 June 2016 10:53
Long Finance Blog – The Pamphleteers

Hopefully, Thursday, 23 June 2016 is a quiet, slow news day with everyone at the polls. Regular readers know that Pamphleteers is about the long-term. We have published only a little on the EU Referendum. I thought I’d exhibit some courage and try to write a long-term post for today with the referendum result pending and uncertain.

To remind those of you reading this from the future, on 23 June 2016 the UK voted on the United Kingdom European Union membership referendum, asking the electorate – “Should the United Kingdom remain a member of the European Union or leave the European Union?” It has been a noisy, acrimonious, and vacuous campaign by both sides. Many voters, myself included, resent having to vote on what was, initially, an internal Conservative party problem due to poor strategy, poor leadership, and poor discipline. The Conservatives are split one from the other in almost two separate parties. Labour’s leadership is split from Labour’s membership. Many things have been said that cannot be unsaid. And with referenda (yes, I’m grammatically stubborn here) now so easily called I fear another one coming, perhaps on a vital subject with no proximate cause, “shall we drive on the right instead of the left?”.

Obviously the big decision will be to ‘leave’ or ‘remain’. But the implications of ‘to leave’ or ‘to remain’ hinge on how large the leave or remain margins are, turnout percentages, on the various splits between the four nations (Wales, Scotland, Northern Ireland, England) and the political parties, as well as on the extent of clear divisions by age, gender, ethnicity, urban versus rural, education levels, and London & the Southeast (themselves perhaps divided with central London versus the Home Counties or central London versus suburbs) versus the rest of the country. Whew. Lots of analysis and different interpretations coming. And lots more UK politics.

I have had the opportunity to travel widely around Europe on work much more than usual during the course of the campaign. Outside the UK, there are also things to do. Other Europeans are hurt. They don’t understand why the UK had this referendum, at this time. In rebuilding any relationship one should:

· Acknowledge that trust was broken.

· Admit your role.

· Apologise for how you acted and what happened.

· Appraise where you particularly broke trust and how you can be more connected, committed, and dependable.

· Amend and plan ahead.

Acknowledge, Admit, Apologise, Appraise – the UK needs to walk round the EU and do these things, whether in or out. If ‘in’, then it would be nice to walk round with the hands of supportive partners, Ireland, the Netherlands, Germany, … there are many countries who earnestly want to partner.

And what might “amend and plan ahead” contain?

1 – In the UK, commit to EU reform. When a light bulb burns out, you don’t buy a new house, you fix the light bulb. UK political parties should write specific EU reforms into their manifestos.

2 – Around Europe, remove direct EU foibles. There are some very obvious points of attack that have been made more evident in this campaign, the waste of two EU parliamentary seats – remove Strasbourg – unaudited accounts, some regulation, complete the common market in services, etc. All EU members can use this as an opportunity to do the obvious and remove easy targets for demagogues around the EU.

3 – Around Europe, set out an exit plan for a member state to leave the euro. There should be the banking regulatory equivalent of a ‘living will’ for a member who wishes to leave. The euro cannot be a lobster pot. Nor should one country’s problems with the euro be guaranteed to precipitate an EU crisis. Yes, the euro-zone might shrink, but it is unlikely to fold. Perhaps there is an optimal size that happens to be smaller but far better for members. Perhaps the euro-zone will grow when it is grown up enough to recognise that there will be leavers as well as joiners over the long-term.

4 – Around Europe, address the democratic deficit of the EU. The knee-jerk reaction to ‘EU democratic deficit’ is to give powers to the European Parliament. Here I have a strange suggestion. The European Parliament exacerbates the democratic deficit rather than fixes it. Any trade agreement requires some form of submission to a greater good, but the more the Parliament is strengthened the more sovereignty issues it creates. The more it is strengthened the greater the dissonance between “no more ‘ever closer union'” and the intentions and desire for power of such a body. There are two democratic lines now, national parliaments and direct European elections. These dual electoral lines have had led to confusion. People kick the establishment on European elections while voting pragmatically in national elections. These dual lines have funded fringe parties of right and left confusing national elections. There are many things to discuss here, e.g. directly elected commissioners, the origination of legislation, national parliamentary representation, etc. Whatever, consider constitutional reform, perhaps even the abolition of the European Parliament.

If nothing else, the EU Referendum campaign repeatedly focused attention on three issues – economics, sovereignty, and immigration. Economics matters everywhere. The UK is not the only country with sovereignty concerns about the EU. Two-to-four above do little about immigration. UK perception aside, immigration reality is a bigger issue in the EU than in the UK.

And if the UK votes leave today? Then Europe should still undertake points two-to-four above – fix the obvious, fix the euro, fix the constitution – though sadly without what might have made a great long-term partner.