ANALYSIS: City regulators react to pressure for change

City financial institutions are revving up their communications activity, partly to polish up a tarnished image but also in anticipation of changes expected with the coming election

City financial institutions are revving up their communications

activity, partly to polish up a tarnished image but also in anticipation

of changes expected with the coming election

It’s now a decade since the Financial Services Act was passed and

promptly revolutionised the workings of the City of London. But today,

in the wake of a series of financial scandals - such as the collapse of

Barings and the furore surrounding the mis-selling of pensions - many

MPs and City barons take the view that there is a pressing need to

restructure the way the Square Mile is run and regulated.

Change, in some form or other, is a virtual certainty; irrespective of

which party wins the forthcoming general election. With this in mind,

the leading City regulators and investment exchanges have been stepping

up their communications activity, anxious that their roles be understood

by politicians and those who frame policy who may be contemplating an

overhaul of the status quo.

The importance attached to communications in the current political

climate has manifested itself in a welter of recent activity. The London

International Financial Futures and Options Exchange (LIFFE), Europe’s

main derivatives trading centre, has just appointed Hill and Knowlton as

its public affairs consultants.

The Security and Futures Authority, the watchdog for brokers and futures

dealers, has just appointed Fishburn Hedges to handle a PR and public

affairs brief. And the Investment Management Regulatory Organisation

(IMRO) is reviewing its public affairs account after six years with

Market Access. In addition, the London Stock Exchange recently hired

APCO in place of its public affairs consultancy of five years standing,

Rowland Sallingbury Casey. There is more to all these changes than


‘There is a stepping up of activity not unrelated to a possible change

of government,’ says one senior figure at an investment exchange.

‘Clearly there’s a lot more happening in this period before a general

election than normal. And we take more care to explain ourselves in such

a period,’ adds a source at one of the City’s regulatory bodies.

Labour’s strong showing in the opinion polls has convinced many that it

will triumph at the next election. Moreover, the party’s City spokesman

Alistair Darling has said that the current regulatory system should be

reformed as a matter of urgency.

Should Labour get in, the likelihood is that it will bring in

legislation pertaining to the City during its first couple of years in

office. Consequently, all those bodies with some kind of regulatory

responsibility have been sharpening up their arguments in defence of

their past performance.

It is not a defence being undertaken lightly. For while Labour’s plans

remain clouded by uncertainty, Darling favours a sweeping transformation

that would include an increase in power for the City’s chief regulator,

the Securities and Investments Board.

A strengthened SIB would clear the way for the abolition of the next

tier of regulation - the self-regulating organisations such as the SFA,

IMRO and Personal Investment Authority. Indeed, many take the view that

the City’s current regulatory structure is too cumbersome.

There are, it is felt in some quarters, too many regulators applying the

regulation. And some with not enough bite to provide adequate


‘There’s pressure on all the regulators to deliver and be seen to

deliver effective regulation,’ says Fishburn Hedges chairman Dale


‘For IMRO it’s important that there isn’t change for change’s sake,’

says IMRO head of press and parliamentary function, Judy Delaforce. It

is a sentiment echoed by other regulatory body communicators who prefer

not to go on the record.

‘The political argument is going to be: how can you change the legal

framework of regulation to get the balance of power between the front-

line regulators and the supervising regulator right?’ says Kit Jebens,

head of Fishburn Hedges’ regulatory practice and former chief executive

of LAUTRO, one of the bodies superseded by PIA.

Even if Labour doesn’t win, there will be change. The Treasury Select

Committee is in the process of examining certain aspects of City

regulation and is likely to propose some sort of shake-up.

Although political uncertainty has been the main spur, other factors

have also contributed to the greater emphasis being placed on

communications in the City. The London Stock Exchange, for example, has

been striving to rebuild an image tarnished by a long run of negative

publicity. Of late this has included allegations that it is anti-

competitive and almost gleeful press coverage of the sacking in January

of its chief executive Michael Lawrence after he ‘lost the board’s


Increasing competition from overseas centres and the need for closer

international co-operation to forestall a repeat of the Barings affair,

have also coloured the approach of the City’s investment exchanges and

regulators to communications. Yet in most cases the central thrust has

been to highlight effectiveness.

‘We’ve been steadily increasing the impact of our public affairs

programme to reach opinion formers,’ says LIFFE director of external

affairs Richard Pratt. ‘Our most important message is about the extent

of the economic value we add to the UK - our contribution to the balance

of payments, the jobs we create and the way companies can hedge their

risks on our market.’

Today those risks are also being hedged through a sharper focus on


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