London Calling: Understanding British Policy Toward Trading Risks

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In the wake of $2 billion of trading losses at the UK unit of JPMorgan Chase, new focus from US regulators has been placed upon London as a haven for excessive trading risks and broker negligence. And while JPMorgan Chase is said to have begun its own analysis into how safe it is to conduct major decisions pertaining to American investors from London offices, the issues of how and why London holds such appeal for investment firms remain arguably worrisome. To learn more about sales practice violations, visit the Investors page of our firm’s website.

Last month Gary Gensler, the chairman of the Commodity Futures Trading Commission, cited on trading losses from JPMorgan, AIG, and Citigroup as instances of supposedly risky maneuvers from London having consequences for US investors.

“So often it comes right back here, crashing to our shores… if the American taxpayer bails out JPMorgan, they’d be bailing out that London entity as well,” he told the House financial services committee.

JPMorgan is said to have done intensive lobbying to avoid regulation of their London derivatives operations being managed by the CFTC, allegedly arguing that the firm will risk loss of business from major European players like Deutsche Bank and Barclays if forced to adopt America’s stricter laws, which require higher collateral from clientele.
The “light touch” methods practiced by the UK Financial Services Authority are said to have been favored and replicated by the US Congress in years preceding the nation’s financial crisis of 2008. It seems the rationale behind such lenience was the concern that financial market business would move to the comparatively lax England with even greater frequency.

Seeking to remain appealing to foreign investors, it’s said that London firms have often resisted impending regulations on the part of the European Union and its own national government. Reports suggest that UK regulators are alarmed by this growing pattern of overseas firms getting into trouble in London. Much of the concern toward this trend is in how large American and Swiss banks run their UK entities as “branches” rather than “subsidiaries”, the accusation of foul play being that these are “branches” in name alone, branded as such so as to shirk supervision from local authority.