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MF Global – Reception at the Institute of Directors

October 31, 2012

Mark has been running a campaign to highlight the handling of the MF Global administration and was invited to speak briefly at an event held by affected clients at the Institute of Directors. His speaking notes are below.

MF Global was a major international financial derivatives broker until it filed America’s eighth largest bankruptcy in October last year. The MF Global case is important as it highlights two significant shortcomings in the British financial landscape. The first is that of re-hypothecation, a process whereby banks and brokers use, for their own purposes, assets that have been posted as collateral by their clients. The second is the efficacy of the UK’s regulatory system and its impact on the City of London’s vital reputation as a safe place in which to do business. Mark has written an article for City AM highlighting his concerns and you can read more about the issue by clicking here.

  • Many of you will know that my involvement in trying to resolve the MF debacle stems from a meeting with one of my more vociferous local constituents, Andrew Geddes!
  • Andrew has been tireless in highlighting just how poorly investors have been treated and I have welcomed his invaluable input, not only because it is right that we rectify any injustices when it comes to individual cases but because the MF case has uncovered some serious failings in the UK system, a canary in the mine for London as a world-leading financial centre. As you will all no doubt know from my City AM article, those failings boil down to, in my view, our stance on rehypothecation and the efficacy of the UK’s regulatory system and its impact on the City of London’s vital reputation as a safe place in which to do business.
  • I must confess that it has taken some time to get the Treasury moving on all this – no doubt because of the sheer size of their ‘to do’ list when it comes to problems that need solving – with some of the initial responses from them implying that the KPMG administration was going as well as it could, in spite of every email to the contrary that I was receiving from investors.
  • I hope I am right in understanding that things may now be improving in this regard since I know, once again from all your emails, that cases are beginning to be resolved slowly but surely.
  • As many of you may be aware, I was contacted a few weeks ago by our new City Minister, Financial Secretary to the Treasury, Greg Clark. Greg is someone with whom I have a longstanding relationship since he cut his political teeth here in Westminster as a local councillor when I was first MP for the area.
  • He reassuringly suggests that a number of strands of work are now underway to explore and address the underlying issues that I touched upon. This includes a government review of the Special Administration Regime for Investment Banks (SAR). MF was the first firm to enter SAR and the review aims to examine whether it is fit for purpose and how best to protect client assets. A report is due to be presented to parliament by February.
  • Alongside this is an FSA review of its Clients Assets Regime that looks at getting better results for clients in an insolvency.
  • Thirdly, work is being done, I am assured, within a number of international fora on the issue of rehypothecation. The government’s aim here is to reach an agreed position that would not put the UK at a disadvantage or create an opportunity for regulatory arbitrage. Meanwhile the FSA has taken forward work to prohibit the practice for retail clients and to ensure that standards of disclosure are improved such that all clients can make a better informed choice on their classification.
  • As ever, I remain alert to any clients whose experiences contradict the government’s official words or highlight any other holes in the system so please keep me in the loop! Finally, I should like to thank those of you who have so kindly taken the trouble to write and thank me following my work in this area. It is vital that we all continue to do what we can to ensure that London remains a thriving hub for financial services in the tricky years ahead.