I find self regulation to be a slightly odd concept. I mean it might be useful when it comes to managing a condominium – although only on the back of a very tightly drawn up agreement between residents. And it seems to be a quite useful, if somewhat violent, way of sorting out disputes between Colombian drugs cartels. But whether it is a sensible basis for dealing with misdemeanors in the context of an international financial center, I must confess I have my doubts.
These thoughts were running through my head as I was lunching with Jeremy in his London club. Lunch, or luncheon as the menu put it, was untouched by any hint of the revolution which had transformed the London restaurant scene. It comprised burnt lamb cutlets accompanied by overboiled vegetables, to be followed by a steamed pudding, guaranteed to accelerate any prospective coronary problems, and washed down, as Jeremy put it, with a carafe of the house claret.
But then ancienne cuisine suited Jeremy, who was probably as far from a revolutionary as you could get. Of course he accepted that change was inevitable. After all, he agreed to his family stockbroking firm being acquired by an investment bank at the time of Big Bang and again a few years later when the investment bank was bought by foreigners. In both cases, his acceptance of change was assisted by a large financial consideration.
Nevertheless, he regretted some of the changes, he said. In the good old days, the City was run by gentlemen and the occasional bounder was dealt with discreetly. The usual punishment for doing wrong, or more correctly, for being found out, was to be completely shunned by one’s peers, blackballed at one’s club and having to retire to the south of France.
The problem these days was not just that there were more bounders, but also that their wrongdoings were no longer treated with discretion. These days, unfortunately, they were bruited all over the newspapers. The day we were lunching, the news was out that Morgan Grenfell Asset Management had been fined £2 mn by the regulators because one of its star fund managers had made hidden investments with customers’ money. It seemed a pretty paltry sum to me when compared to some of the bonuses being doled out to high-fliers in the City this year.
‘You do realize that it’s almost three times higher than any fine previously imposed?’ he said when I pointed out that the sum involved was neither here nor there to Deutsche Bank, Morgan Grenfell’s parent, and was less than one percent of the black hole in investor funds left by the irregular dealings. ‘And then, of course, there’s the embarrassment caused by all of the publicity,’ he added.
Embarrassment, it seemed to me, was in pretty short supply in the City these days. The regulator’s report pointed out that at least one member of MGAM’s board had known that suspect investments were being sold at least five months before the solids hit the air conditioning but, as yet, as far as anyone was aware, no-one had made a reservation on a one- way flight to Nice.
And then there was the question of the funds’ advisors. The auditors, KPMG, gave them a clean bill of health only eight months ago. And the corporate trustees, first General Accident and later Royal Bank of Scotland, were paid vast sums for checking the funds’ prices. But, none of them had been fingered by the authorities.
But it wasn’t the specifics of this individual case that I really wanted to discuss, despite the strong smell of bolting horses and evidence of poorly secured stable doors. To my mind, it was much more a question of whether the current controls were adequate, given the recent spate of scandals to hit the City.
‘Don’t you think that relying on the law can be the wrong approach?’ Jeremy ventured. I was somewhat taken aback by this suggestion. Given the slightest opportunity, he was prone to express very firm views on how muggers, beggars, social security scroungers and aggressive rollerbladers should be dealt with. The solutions to these problems he usually proposed involved throwing away keys, branding, castration and similar punishments. So I asked him to explain what he meant.
‘Well,’ he began, ‘if you have a voluntary code, chaps enter into the spirit of it and go out of their way to comply. But with a legal framework, they look at the letter of the law rather than its intention and spend all their time looking for ways round it.’
It was an interesting concept on which to muse as the waitress cleared away the remains of the treacle tart and replaced them with port and stilton. But a concept which belonged to a different world. A world long passed for most of us, if it ever existed. A world in which the cheese course always came after the pudding.
