I am working as a trainee TV journalist for ITV. ITV is planning to run a feature article on financial services. I am going to contribute to the article to describe as to why an industry such as financial services should require regulation. I will also produce an investigative timeline of the history of financial services, and explain how it got its bad reputation and how it has now cleaned up its act to benefit all stakeholders.
Financial regulation 1) is the supervision of financial markets and institutions. Financial regulations necessitate financial institutions to certain requirements, restrictions and guidelines. The primary purpose of a financial regulation is to maintain the integrity of the financial system. Financial regulation protects investors, maintain orderly markets and promote financial stability.
There are four main objectives of financial regulations. First is market confidence; this is to preserve confidence in the financial system in the UK. This is to guarantee that markets are fair, efficient and transparent and that individuals and companies have assurance in financial intermediaries and in the money supply. Another aim is financial stability. This is the contribution to the protection and improvement of the stability of the financial system. This is to maintain and raise understanding to the public of the financial system. They will be told of the benefits and risks of the different forms of financial transactions. Consumer protection is another financial regulation aim. This is to protect customers. The last objective is reduction of financial crime. This is to reduce the amount of financial crime such as money laundering, fraud and dishonesty including e-crime and criminal market.
I am now going to produce an investigated timeline of the history of financial services, and explain how it got its bad reputation and how it has now cleaned up its act to benefit all stakeholders. The first bank I am going to discuss is the Johnson Matthey Bank 1984. The Johnson Matthey Bank expanded its activities and started to make high risk loans. These loans were concentrated to 4 borrowers, El Saeed Group, Abdul Shamji, Mahmoud Sipra and Rajendra Sethia. £21 million was lent to Abdul who was an owner of Puddle Dock and the Mermaid Theatre, supposedly a low risk customer. To prevent a larger banking crisis, The Bank of England recued the bank by purchasing Johnson Matthey Bank for £1.
The Bank of Credit and Commerce International was involved in fraud in 1991 where deposits worth £250 million were frozen. Touché Ross reported a £5.6 billion deficit at the time of the closure. It was later found that the Bank of Credit and Commerce had also stolen £1billion from Sheikh Zayed’s personal account. The Bank of Credit and Commerce International were also fined $15million for laundering drug money for former President of Panama General Noriega. Authorities lost around £82million after investing in the bank and the UK Deposit Protection Fund only guaranteed investments up to £15,000 meaning those who invested more would lose a lot of money.
Barings Bank also collapsed in 1992. Nick Leeson, the reason for the collapse was working at Barings as a futures and options trader. In 1992 he relocated to Singapore. Leeson’s first losses started in 1992 with £2 million which then increased to £208million. In 1994 Leeson put around, 40,000 contracts on the market which would have been profitable if there had not been an earthquake in Japan. In 1995 Barings Bank was purchased by ING bank for £1.
Allied Irish Bank executives had the FBI search the bank after finding that around $700 million and trader John Rusnak had gone missing. He betted mainly on Japanese Yen and racked up millions of dollars in small losses that he tried to hide. John had a limit of $2.5 million but went up to $7.5billion due to lack of checking. John Rusnak now has served over seven years in prison due to his actions.
Last is the Bernard Madoff ‘Ponzi’ scheme. A well-respected financier, Madoff convinced thousands of investors to hand over their savings, falsely promising consistent profits in return. Madoff used a Ponzi scheme, which lures investors in by guaranteeing unusually high returns. Things began to deteriorate after clients requested a total of $7 billion back in returns but Madoff only had $200 million to $300 million left to give. He later on handed himself in and got 150 years in prison.
In conclusion, these problems highlighted in the banks above have affected the way we do things today. There are now many laws and regulations in order to make sure this doesn’t happen again and customers are closely investigated before granting them any services.