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Square Mile On The Up As Sarbox Begins To Bite

By Londonist Last edited 121 months ago
Square Mile On The Up As Sarbox Begins To Bite
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The mayor of New York, Michael Bloomberg (yes, Bloomberg as in that media conglomerate), is in London at the moment to look in greater detail at why so many international firms are moving their M&A activity and their currency trading to our very own City - away from his home turf. US firms - especially the ones that earn fat fees from such business - aren’t happy about the shift, with consultants McKinsey having released a report which warns that the US could lose “4 to 7 percent of the global financial services market over the next five years”. Four to seven per cent of trillions is, um, a lot, so it’s understandable that Bloomberg is worried.

Bloomberg said: “The F.S.A. is an example of the kind of streamlined and responsive regulatory framework Congress must implement if New York City is to remain the financial capital of the world.” (Well, Private Eye don't call it the Fundamentally Supine Authority for nothing, after all.)

It’s probably good news for London, though, as much of the business lost by Wall Street will make its way across the Atlantic to the Square Mile - although the ‘Square Mile’ itself is these days more a concept than a concrete location, as ever-more businesses move down to Canary Wharf, with investment bank JP Morgan the latest financial institution reported to be thinking of a change of postcode and a nice view of the river.

The reason for this transatlantic flight? Bloomberg and the consultants partially blame the Sarbanes-Oxley Act, which imposes stringent reporting standards on companies choosing to present their accounts in the US. The Act - often shortened to Sox or Sarbox - was introduced with the laudable aim of cutting corporate misreporting scandals in the wake of the Enron fiasco. However, firms complain that it goes too far, and stifles their competitiveness. Londonist isn’t qualified to comment on that statement, but following the money trail seems to suggest the corporate whingers may have a point, with the accountants the major beneficiaries of Sarbox as audits get ever-more complicated and they make a killing. Does this mean the UK is in danger of hosting a major corporate catastrophe à la Enron? Well, maybe, although our own regulations aren’t exactly lax.

London’s growing reputation as the place to do business is on balance good for the city, of course, as it creates jobs – although how many of those new jobs will be taken by “disappointing” UK graduates is open to question - but there are possibly questions to be asked about the skewing effect that the sky-high wages and the famously fat (obese?) bonuses paid to the cream of London’s financial workers have on the UK labour market as a whole, not to mention rents and the price of a meal east of Chancery Lane. It all strikes us as a bit Gordon “greed is good” Gekko, but these transactions have to take place somewhere, we suppose, so it may as well be in London – even (especially?) if it pisses off the Yanks.

Last Updated 06 February 2007

anon

"it may as well be in London" of course!!!! That way all the bonuses and profits are taxed by the uk.... thats an awful lot of hospitals etc paid for by 'Fat' bonuses... get over the jealousy part and work out how much more you would have to be taxed if these ppl weren't getting paid what they do in London (cos they would just move somewhere else). Its very hard to avoid tax on income / bonuses paid by companies. So I say cheers to having them in london not new york.

Londonist

Hi anon,

I agree overall with your point but was trying to make a gentle observation about the distorting effect huge City payrises and bonuses have on the overall economy of London - and the rest of the UK, too. It's a very grey area, especially when you factor in things like the deleterious effect wage inequality has on the population's overall mental health. Also, as an avid Private Eye reader I am aware exactly how good certain Square Mile firms are at lessening their tax bills - through means both legal and otherwise.

I don't think I'm arguing from a simplistic Communist-style "capitalism is evil lol" viewpoint - just that the boom in the financial services/legal/accounting sectors benefits relatively few people (only a few tens of thousands out of millions), and their overall effect on London has not been entirely beneficial. Look at property prices: Many people, including me!, are effectively priced out of London, and this can at least partially be explained by rich City types snapping up formerly affordable housing as buy-to-let opportunities, thus causing prices to go through the roof. OK, whinge over.

If, in the future, the UK is to stay competitive globally then the expansion of the City will have a massive role to play; but before we all turn into bonus-obsessed merchant bankers and chartered accountants it's worth taking a step back and thinking through the consequences.