UK doing its best to block City reform, says German minister

Published on Wednesday 23 September 2009 22:00

THE German finance minister has launched an attack on the City, claiming that London is "doing its best" to block the introduction of stricter regulations on financial markets.

On the eve of the G20 summit in Pittsburgh, where European Union proposals for a new pan-European financial watchdog will be discussed, Peer Steinbrueck said he hoped new rules on bankers' bonuses could be agreed today and tomorrow.

However, he said the financial sectors in Britain and the United States were resisting stricter regulations, telling Germany's Stern magazine yesterday: "There is clearly a lobby in London that wants to defend its competitive advantage tooth and nail."

He also said Britain was having an "especially hard time" agreeing to tougher regulation of hedge funds.

The EU yesterday unveiled its plans for an overhaul of the way banks and financial markets are policed, a central plank of new rules designed to prevent a repeat of the global economic crisis. It plans a banking "super-watchdog" with the power to overrule individual countries, and a pan-European supervisor that would warn of early signs of crisis.

Also on the G20 agenda is the European Commission draft directive on alternative investment fund managers (AIFM), aimed at regulating London's hedge fund and private equity markets. Some of Britain's biggest hedge fund companies say they will leave the country unless the draft is drastically revised before becoming law.

Patrik Karlsson, director of EU government affairs at the British Bankers' Association, called Mr Steinbrueck's comments "unfair". He said: "The industry in London has recognised that there needs to be an overhaul of supervisory architecture. A lot has been done already.

"We are not going against Brussels, we think most of the proposals from the European Commission are sensible – for example, we think the AIFM directive on hedge funds is good legislation."

A spokesman for the FSA said: "There is a lot of agreement on the big issues between the countries. However, different countries have different national interests so there is some ongoing dialogue and debate."

Stuart Fraser, chairman of the policy and resources committee at the City of London Corporation, said the British financial sector broadly accepted the need for "proportionate regulatory reform".

But he added: "World leaders must recognise that a 'one size fits all' solution is impractical."

A Treasury spokesman said: "Our proposals for clawback and deferral of bonuses, in addition to much greater transparency, have become the international blueprint for reform.

"We will continue to work with other nations … to make sure pay policies are structured in the long-term interests of financial stability."

Mr Steinbrueck has previously criticised Britain on the issue of regulation. In July, he accused the government of hindering efforts to reform global financial markets because it is too eager to pander to the City of London.

Mr Steinbrueck is hoping Chancellor Angela Merkel will re-appoint him as finance minister if she is forced into another "grand coalition" with his party following Germany's general election on Sunday.