Andrew Bailey, the chief executive of the Financial Conduct Authority, is usually good at reading the breezes. He is the safe-hands operator whom the former chancellor George Osborne switched from the Bank of England to inject some much-needed credibility into FCA after its various calamities.
For most part, the FCA under Bailey has performed as intended. Muscular common sense and a sound grasp of markets, which are all that’s really required of a financial regulator, have returned.
But if Bailey wants to keep this better image for the FCA he will have to find a way to abandon the proposal to rewrite the listing rules to make it easier for Saudi Arabia’s state-owned oil company, Aramco, to float in London. The investment community hates the idea and the heat on the FCA will intensify now that the chairs of the Treasury and business select committees are asking pointed questions about ministerial interference.
Naturally, the FCA doesn’t describe its idea as a sop to the Saudis. In its view, its work is all about updating the rules and keeping London competitive. Aramco isn’t even mentioned in the paper. It’s just that almost nobody else sees this as a bland technical exercise. Furious fund managers sense a bad case of a regulator planning to lower standards to suit ministers’ short-term desire to persuade Aramco to float in London rather than New York.
The investors’ objection is straightforward: why on earth would we want to create a “premium” listing category for state-owned companies while not enforcing normal investor protections?
Under the FCA’s proposal, the likes of Aramco would be allowed to ignore some basic principles. They would not have to get approval from outside shareholders for transactions with the state. They would not have to give independent shareholders a vote on who should serve as independent directors.
There clearly could be a place for such companies in London, but you would hardly award “premium” status, a label that is meant to indicate the highest governance protections. The regulatory regime would look like a pushover, which may succeed in drumming up some short-term business but could seriously damage London’s status as a good place to invest.
Bailey and the FCA should read the mood. Resistance to the proposal is deep and wide, and rightly so. There is room to backtrack since only a consultation paper has been issued so far. The sooner the U-turn happens, the better.
What goes up must come down … surely?
When the government in February lowered the Ogden rate – a discount formula used to calculate compensation payments for victims of serious injuries – from 2.5% to minus 0.75%, the chief executive of one large insurance company called the decision the worst piece of policymaking he had seen in his career.
He was not a disinterested observer since the rejig threatened to cost insurers (and also the NHS, which is exposed to claims for medical errors) a lot of money in the form of substantially higher payouts to victims who need lifetime support. But he had a point. A negative Ogden rate implied recipients could expect to receive negative returns on their lump sums. Even in a low-interest world, that defied common sense.
The culprit, explained Liz Truss, the justice secretary at the time, was low long-term gilt yields. Her hands were tied by a long-established formula for setting Ogden.
Her successor, David Lidington, thinks his hands are freer. He proposes “a new framework based on how claimants actually invest”. That seems reasonable, especially if, as the government suggests, the new calculation produces a suitably conservative figure between 0% and 1%.
The insurance companies, when they’ve stopped celebrating, should tell us by how much car insurance premiums will fall. They screamed blue murder in February and used Ogden to justify rises in premiums, especially for young drivers. Cuts in premiums must now be seen to arrive.
Two choices – one bad luck, one duff
It is sweet and commendable of the fund manager Neil Woodford to apologise to his followers for his miserable investment performance of late. Most of his breed would sit in a bunker. Hiding would be tricky in Woodford’s case, of course. Not only is he the most famous (rightly so) retail fund manager in the land, but he has also been at the scene of too many stock market accidents recently, notably FTSE 100 firms AstraZeneca and Provident Financial. That does require an explanation.
It’s just that Woodford’s is odd. While conceding that heavy falls at both companies – two of his largest exposures – “have not helped,” he delivered a sermon about how the stock market is currently obsessed by stocks with exposure to China. That’s an interesting theme (as is the statistic that just eight big stocks account for half the gains in the FTSE all share index this year) but his UK focus hardly explains the rotten run.
Everybody knew AstraZeneca’s shares were bound to move 10% or more, up or down, depending on the result of the Mystic lung cancer trial. As for Provident Financial, surely nobody expects a quiet life from a doorstep lender making high-interest loans. Call it one piece of bad luck and one duff, or over-aggressive, stock pick. It happens.
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