City watchers have reacted cautiously to George Osborne’s plans to tighten controls on the £3 trillion-a-day foreign exchange market due to be unveiled at the Mansion House dinner tonight.
Gerard Lyons, economic adviser to the Mayor of London, pointed out that the UK dominates trading in forex with a 40 per cent market share against 19 per cent in New York.
He cautioned against too much regulation saying: “In recent years, the regulatory pendulum swung from one extreme of light regulation before the crisis and now continues to head towards the other extreme. We need global rules but it is vital London keeps its own house in order.”
Ed Parker, co-head of derivatives at international law firm Mayer Brown, said: “It’s a tightrope: too strong regulation, and business may fly to easier climes; and too light, and a loss of market confidence may be just as harmful.”
Andrea Leadsom, economic secretary to the Treasury, said: “There have been some very serious allegations made about manipulation of foreign exchange and other markets. There is a small number of people who need to understand that rigging is not acceptable.”
Mansion House speech: Osborne to announce jail terms for rate fixing
Tougher penalties, including jail sentences of up to seven years, will be extended to other parts of the financial services sector in an attempt to prevent more scandals.
George Osborne will announce that legislation brought in after the Libor inter-bank lending rate-rigging affair will also apply to the foreign exchange, commodities and fixed-income markets.
The Chancellor is worried about serious allegations of misconduct in these markets and wants to be “ahead of the curve” rather than react to events.
In his annual Mansion House speech to the City of London, Mr Osborne will say: “The integrity of the City matters to the economy of Britain. Markets here set the interest rates for people’s mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy. I am going to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them.”
After the Libor scandal, the Government brought in a new criminal offence of reckless misconduct for senior managers whose actions lead to bank failure with a maximum penalty of seven years jail and/or an unlimited fine.
Legislation will be finalised after a “fair and effective markets review” by the Treasury, Bank of England and Financial Conduct Authority, Mr Osborne will announce.
The Chancellor is expected to be upbeat about the economy while avoiding triumphalism.
David Cameron has told Conservative MPs that the economy and immigration hold the key to winning back the voters who defected to Ukip. He said the economy was a more important issue for these voters than Europe, and that the Tories had the policies to answer their concerns.
In a rebuke to Theresa May and Michael Gove, who have clashed over extremism in schools, the Prime Minister said the Tories did well when they avoided “distractions”, and stuck to the key issues.