Saturday, January 09, 2016

Who is telling the truth over the dropping of the Culture review of the banks?

Yet again, we are facing the usual tsunami of disinformation coming from Government, the Treasury and the FCA as to whose decision was it to decide to drop the review of banking culture.

George Osborne says it wasn’t him, The Treasury denies having any part in this decision, and Tracey McDermott, fearless acting head of the FCA says that it was the FCA that made the decision, but it doesn’t mean they are going soft on the banks.

The City regulator, the Financial Conduct Authority, is "not going soft on the banks", its interim chief executive Tracey McDermott has said.

In December the FCA said it had shelved plans for an inquiry into the culture, pay and behaviour of staff in banking.

Such a review was crucial to a better understanding of why banks have come to resemble organised mafia crime families in recent years. We, the tax payers deserve the right to know why our money has been used to prop up an entirely rotten banking edifice, and empire of crime and wrong-doing, and we are entitled to know how this dysfunctional system has developed and evolved.

Critics of the decision to back off say the Treasury successfully put pressure on the FCA to be more "light touch" with financial firms.

Hang on, we’ve been there before, haven’t we? Wasn’t it ‘wee Gordie Broon’ who prevailed upon the regulators to adopt light touch regulation, prior to the banking collapse in 2008. 

Look what happened then. The bankers went on a spree of criminal activity that left the banking industry on the verge of collapse, and we, the tax payers had to have our pockets picked, to keep these gangsters afloat!

But Ms McDermott insisted the FCA was still taking tough action, including a £72m fine imposed on Barclays in December.

Speaking to the BBC she said: "We're not going soft on the banks, we're not being told what to do by the government. We have objectives which are set for us by parliament and statute, and we are determined to deliver on those." 

Fining Barclays millions of pounds for financial wrong-doing is pointless is not being tough on them. It merely becomes a deduction from their bottom line for tax purposes, it isn’t punishing them at all. The only people taking the hit are the shareholders, while the gang bosses on the 5th floor are laughing all the way to their next bonus.

Frankly, we would be better off in this country without Barclays Bank, and I suspect, other major banks as well.

Who says so, well I am indebted to Richard Murphy, a chartered accountant and a political economist. He has been described in the Guardian as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London. 

Quoting from his seminal work 

“...Barclays: the bank that just loves Luxembourg and Jersey, but not the UK...”

I have drawn on some of the following features, and particularly the way in which Barclays reports its profitability in the UK. Reviewing Barclays own reported figures provides us with some fascinating insights.

In examining Barclays own reported figures for 2014, he states:

What I wanted to see is whether or not it was likely that the claimed allocation of profits and losses by Barclays accords in any way with the likely allocation of profits by Barclays to the UK, in particular... 

Suddenly the UK does not make the loss, which Barclays admit they report in this country. Instead a profit of almost £1.1 billion is reported. And Luxembourg does not make a profit of £1.38 billion as is claimed in the original data, but ends up with just £71 million. Jersey also drops, in that case from £801 million of profit to £53 million.

It is complete nonsense for Barclays to claim they make a loss in the UK of significant amount (as seems likely) when in practice more than equal and opposite sums turn up, virtually untaxed, in Luxembourg and Jersey within their own accounts.

So, what is happening? I have a long list.

First, Barclays is, very politely laughing out loud at the UK and is failing to pay its way as a UK bank. So much for the contribution the City makes: this bank is not making it.

Providing employment? Barclays is employing people who would otherwise be employed elsewhere. 

As for the banking levy, that’s a tiny contribution to the cost of having effectively been bailed out by the UK taxpayer in 2008 – which all banks were as it was the system as a whole that failed. So let’s ignore claim that Barclays is contributing to the UK in these ways: it is not doing anything more than it should.

Barclays is a massive user and maybe abuser of tax havens, and especially Jersey and Luxembourg.

It is clear that transfer pricing of head office operations is not taking place effectively in the case of this company. HMRC must have the power to say that a company must reallocate costs to the group it manages from the UK or a mockery is made of our tax system. The need for reform in this area is obvious.

The question has to be asked as to why we are so keen to have companies headquarter in the UK when it is very clear that many other countries benefit more than us by not having Barclays’ head office in their domain. Barclays could bank here by all means, but candidly we would be better off without their head office.

We can ask in that case how the Barclays’s auditors (PWC) signed off these accounts as true and fair when that is the last thing they look to be.

This analysis suggests that Barclays is massively under-declaring profit in the UK at cost to all of us. The loss to the UK could easily exceed £150 million based on the above data. And in that case it is time for serious tax reform in this country.

Now, a fair and proper review of banking culture, and particularly with regard to the way they account for their profit and loss positions, would, I suggest, have had a seminal impact upon the attitude of ordinary British tax-payers, who would have rightly become very angry indeed at this wholesale exercise in tax fiddling.

If Barclays have been doing it, you may rest assured that the other big players will have been doing it in order to take advantage of the hyper-relaxed attitude that Government takes towards the criminal banks in the UK, and it is legitimate to ask what do these banks really contribute towards the common weal?

Back in the day, when the British public had seen the results and the findings of the Treasury Select Committee, and were asking genuine questions of concern about the probity and the legitimacy of our banking sector, the Government announced its intention to undertake a banking culture review. What follows restates its terms of reference.

“...The government is today announcing further steps to raise standards of conduct in the financial system with a joint review by the Treasury, the Bank of England and the Financial Conduct Authority (FCA) into the way wholesale financial markets operate. Strong and successful financial services that set the highest standards are an essential part of building a resilient economy.

The ‘Fair and Effective Markets Review’ will be led by Bank of England Deputy Governor for Markets and Banking, Minouche Shafik, with Martin Wheatley (Chief Executive Officer, FCA) and Charles Roxburgh (Director General, Financial Services, HM Treasury) as co-chairs.

Recent events have demonstrated the need for authorities and market participants to take action to ensure fair and effective markets. Forward-looking in nature, this Review reflects the government’s long term economic plan to ensure Britain remains a world leader in financial services, with successful institutions operating to the highest standards.

Drawing on the insights of public officials, market participants, end users of wholesale financial services, the Review is also intended to reinforce confidence in the fairness and effectiveness of UK wholesale financial market activity, and influence the international debate on trading practices.

Amidst recent serious allegations of misconduct in financial markets, the Review will focus on those wholesale markets where the bulk of concerns about misconduct have arisen - fixed income, currency and commodity markets - although it could have applicability across a wider range of wholesale markets.

It builds upon the tough action Britain has already taken to punish the wrongdoers and fix the financial system, including the work of the FCA to reform LIBOR and the Parliamentary Commission on Banking Standards which has led to a new legal regime for senior managers.

The Review will run for 12 months and is expected to make recommendations on:
  • principles to govern the operation of fair and effective financial markets;
  • reforms to ensure standards of behaviour are in accordance with those principles;
  • tools to strengthen the oversight of market conduct;
  • whether the regulatory perimeter for wholesale financial markets should be extended, and to what extent international action is required; and
  • additional reforms in relation to benchmarks, in order to strengthen market infrastructure.
So there you have it.

During this cultural review, the question of profit taxation would inevitably have arisen, and as we can now see, thanks to the insights of a highly qualified accountant, they would not have passed muster.

No wonder the bankers didn’t want any element of their banking culture to be examined or investigated. 

The taxation system however was only one small element of the rest of the long list of criminal actions, dishonest incentives; commissions which possess all the criminal qualities of bribes; dishonest actions by banking groups setting up clients to borrow vast sums of money and then deliberately bankrupting them and taking over their valuable assets; the institutionalised degree of false accounting in accounting standards; to say nothing of the vast level of criminal money laundering which these British banks are providing to their criminal foreign clients.

Any culture review would simply not have been able to deflect the realisation of what a bunch of criminal operators have been allowed to take over the control of the British wholesale banking industry, and such a recognition would, I am convinced, have predicated a scandal of such proportions that I truly believe it would have become an issue of political confidence.

I have no doubt whatsoever that the big players in the banks prevailed upon the Treasury and therefore George Osborne to soft-pedal on this culture review, realising that it was a road to perdition.

Well, the genie may be back in the bottle for the time being, but I wonder how long the FCA can keep it there. These things have a tendency to explode at just the wrong time!


ThatGuy Bloke said...

Hi Rowan

Great blog! Found you after an appearance on Keiser Report. Thought I would put a link to a blog of yours on my website. Now gotta say, the tone of my site is pretty 'spit n sawdust' humour so just thought I'd make sure you know about it and if any issues do let me know.

Also, The Bankers Song, if you like a beer and a sing song, It is 'adult' humour tho.

Righto, looking forward to more of your blogs this year.

Best Guy

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