'The City of London has never been a model for any kind of responsible conduct. It has looted people’s savings, investments, and pensions for decades.'

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

Brexit has unleashed the forces of deregulation and a new Bill is on its way. Supporters of the Bill refer to the success of the finance industry and the City of London as an epitome of deregulation and free markets. They have short memories.

The City of London has never been a model for any kind of responsible conduct. It has looted people’s savings, investments, and pensions for decades. It gets away with it because it has colonised the state to secure privileges not enjoyed by any other sector. No other sector has received so much public money.

Between 1995 and 2015, the scandal-ridden finance industry made a negative contribution of £4,500bn to the UK economy. This starved other sectors of graduate talent, investment and resources and retarded the development of the UK economy.

The finance industry has mis-sold virtually every financial product and has engaged in frauds, tax dodging, money laundering and other nefarious practices. The 2007-08 crash revealed reckless risk-taking, fraud and unsustainable speculation. Markets did not rescue the crashed banks and building societies. The state provided around £1,162bn of support to bail-out the crashed banks and former building societies.

Of course, this is not the first-time that the finance industry has wreaked havoc. The mid-1970s secondary banking crash revealed the usual story of reckless speculation, frauds and fiddles. The crisis spread to the property and the insurance sector. The state bailed out the City.

In the 1980s, Lloyd’s teetered under the weight of frauds and Johnson Matthey collapsed. The state came to the rescue. More frauds came to light in the 1990s at Barlow Clowes, Dunsdale, Barings and the Bank of Credit and Commerce International (BCCI). The state did little to change the get-rich-quick culture in the City of London.

Rather than curbing predatory practices, the state has handed £895bn in the form of quantitative easing to the finance industry. This has inflated the price of securities, corporate bonds, and property to enable the crashing class to become even richer. Imagine, what £895bn investment in productive assets would have done to transform the UK economy.

The virtual absence of the threat of bankruptcy has emboldened banks to engage in predatory practices. Banks forge customer signatures to confiscate people’s homes and businesses. Regulators do little.

The UK has become a major hub for money laundering even though it is officially a threat to national security. Around £100bn a year is estimated to be laundered. The government aids the flow of dirty money to the UK. Shell companies and fake identities, key tools for illicit financial flows, are provided in unlimited quantities by Companies House. Anyone can use any imaginary name and address to form a company, with no authentication checks.

Banks are required to apply the Know Your Customer (KYC) checks and verify the identity of account owners, but why spoil a profit-making opportunity when they are immune from the threat of bankruptcy. Fines are easily passed on to customers in the form of higher charges

NatWest is the only example of a UK bank to plead guilty to money laundering. Despite the KYC rules, a customer with an annual turnover of £15m managed to deposit £365m over five years, including £264m in cash delivered in bin bags. NatWest paid a £265m fine. No action is taken against any director.

Attempts to reform the law and regulatory structures are rebuffed. This week a legislator (also a former Minister), explained how he was leaned-on as he pressed the government to introduce a public register of overseas property owners so that the real owners and beneficiaries of dirty money could be identified. The legislator explained that “over a period of five years successive ministers have offered me emollient promises that the issue was in hand. What has happened? Absolutely nothing”.

Last year, during a House of Lords debate on the Financial Services Bill I drew attention to how the government protected HSBC. In 2012, the US authorities fined the bank $1.9bn for permitting “narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries”. HSBC “accepted responsibility for its criminal conduct and that of its employees” and escaped prosecution by entering into deferred prosecution agreement.

Despite the world’s largest fine, at that time, there was no UK inquiry. A subsequent inquiry into the US failure to prosecute a criminal bank showed that the UK Chancellor, the Government of the Bank of England, and the head of the Financial Services Authority (predecessor of the current Financial Conduct Authority) had secretly urged the US to go easy on HSBC. My exposé in parliament did not result in any government remorse, apology or promise of any future transparency.

A bloated and scandal-ridden finance industry is no model for sustainable economic development. If the government really believes in its free market rhetoric, then it must cut the City lose and ensure it is not the recipient of public money and political cover-ups.

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