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Welcome 1984, already 28 years late but coming to your living-room soon!

Kitty Miv, Editor
05 April, 2012

ESMA, AIFMD, CESR, CEBS, Solvency II, Basel III, CEIOPS: 10 marks and a super-size Belgian waffle if you can say straight off what each of these represents, without going to Wikipedia. You won't be able to, unless you're a European banking lawyer working in Brussels, and then you'll be far too busy making indecent amounts of money drafting new sets of compliance procedures for your clients to be reading my scribblings.

Indeed they are all European regulatory bodies, part of a tsunami of newly-erected bureaucratic defences against any recurrence of the debt crisis. They won't make the slightest difference, of course: human nature and those clever banking lawyers will make sure that there is another crisis in ten years or so, and off we go again.

What they will do, though, is to push up compliance costs, reduce trading opportunities, make Europe even less competitive than it already is, and drive financial organizations away to more lightly regulated environments, many of them *ffsh*r*. Those financial centres unlucky enough to be under the baleful eye of Brussels won't be beneficiaries, though. Here is Gibraltar raising many of its supervisory fee levels by 10% or more, while pointing out that the UK's FSA has raised its fees by 15% in this year alone. And the FSA is dividing itself into two, so presumably there will be another bunch of fees to pay as well.

Financial institutions in Europe are alarmed, to put it mildly, by the onrush of inimical regulation. Here is the leading hedge fund association complaining that the European authorities have turned a cloth ear to its pleas for a workable new fund management regime.

For any fund manager, bank or insurance company with a US operation or even US clients, the problems don't stop there, because of FATCA and Dodds-Frank, to pick two of the most egregiously dreadful pieces of equivalent US legislation which have emerged from the anti-business, anti-*ffsh*r*, protectionist US legislature under President Obama, who in time will be seen to have done more damage to the US economy than a dozen Lehman Brothers collapses.

Very large financial institutions don't have much choice but to knuckle under to the new rules, both US and EU, simply because they have branches, affiliates and clients spread across the two regions, and they can't realistically move everything to Singapore lock, stock and barrel, overnight. But they will be shackled in future when competing against more nimble firms, and on the margin, over time, they will gradually reduce their US and EU operations in favour of start-ups, acquisitions or partnerships in Dubai, Hong Kong, Singapore, Bermuda, Mauritius, the BVI and other places where low taxes and light regulation offer a more benign environment.

International businesses and wealthy individuals (family offices) already understand the new world they live in, and have only a very light footprint in the legacy economies of Europe and America. You have to feel sorry though for the wage slaves and start-up entrepreneurs in countries like the UK, who will be offered ever less appetising and worthwhile financial products by their constrained suppliers. Or will they turn to the Internet? If you were going to start a new life insurance company, for certain you wouldn't do it in London any longer, you would do it from Guernsey or the BVI, and offer your wares through the Internet. You won't be allowed to market into the EU, of course, but short of Chinese-style repression it's not clear that Western governments can realistically stop the growth of international e-markets in the cloud. They'll try, of course. Just this week the UK has attempted, for the second time, to place recording devices in every home to monitor all e-mail and Internet connections. It looks as if parliamentarians will fob off their 'Digital Big Brother' one more time. But for how long?

Welcome 1984, already 28 years late but coming to your living-room soon!




About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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