Andrew Bailey’s Thirst for Foreign Capital must be Tempered at the Bank of England
The search for the next governor for the Bank of England came to an end this week, with the decision to appoint the 60-year-old head of the Financial Conduct Authority (FCA), Andrew Bailey.
Bailey has long been seen as the front runner to replace incumbent Mark Carney, who will leave his post after more than six years of service.
But although the Treasury is at pains to portray Bailey as a “safe pair of hands,” many are less than pleased by the appointment and have expressed concern over his patchy record at the FCA.
During his tenure at the City watchdog, Mr. Bailey has in fact been involved in several high-profile controversies.
These have included the £236 million collapse of London Capital and Finance, the mishandling of complaints into RBS’ treatment of small businesses after the financial crisis, and the recent implosion of notorious fund manager Neil Woodford’s investment business.
These investment scandals have fed criticism that Bailey and the watchdog he presides over are indecisive and out of touch.
But perhaps the most worrisome aspect of the soon-to-be governor’s record pertains to his lax attitude to questionable foreign enterprises, and his ready willingness to take shortcuts in return for investment.
In 2018, the regulator changed its listing rules to boost London’s chances of hosting the £1.5 trillion stock market flotation of Saudi Aramco, Saudi Arabia’s state oil company, brushing aside the concerns of business leaders and investors and drawing heavy criticism. Ultimately the move failed to attract the flotation.
Then there was the case of the ENRC – the Kazakh mining company that was allowed to list its shares in the UK despite the fact that the portion available to be freely bought and sold failed to meet the usual 25% threshold.
ENRC subsequently crashed out of the FTSE 100 and is currently being investigated by the Serious Fraud Office.
And cases of the FCA being so infatuated by foreign capital as to relax regulation and cut corners don’t end there.
Arguably the most worrisome example involves the £1 billion floatation on the London Stock Exchange in 2017 of EN+, the Russian aluminum company formerly controlled by Oleg Deripaska, the Russian oligarch known as “Putin’s favourite industrialist.”
Bailey oversaw what was the first sale of shares of a Russian company in London since the 2014 invasion of Crimea, despite clear evidence to suggest that the money raised would be used to pay back debt to Russian bank VTB, which was under sanction by the U.S. and EU.
The purpose of placing VTB on a sanctions list was to impede it from raising money in the world’s fundraising capitals.
Yet, effectively, the FCA watched on as a Russian company raised money from international investors in London, before channeling it directly to a sanctioned Russian bank.
Moreover, there are serious concerns that EN+ was also providing aluminum powder to a Russian missile warheads maker, raising further questions about the lack of scrutiny that foreign companies have been put under by the FCA.
To further emphasize the shocking nature of this case, both EN+ and Deripaska himself were soon after placed under U.S. sanctions.
The oligarch’s meddling over the years has been well reported, from election interference to corruption and intimidation tactics. The U.S. Treasury has accused him of playing “a key role in advancing Russia’s malign activities.”
Yet this man has been allowed to freely float shares in the UK, under the supposedly watchful eye of our financial watchdog.
This case perfectly encapsulates the inadequacy of the FCA under the guidance of Mr. Bailey: too keen to demonstrate that the UK is “open for business” to concern itself with trivial matters such as national security.
Now, with Mr. Bailey at the helm of the Bank of England, there are legitimate fears that a short-sighted eagerness to attract foreign capital will pervade the halls of our monetary authority.
In a post-Brexit world, global economic governance is a commodity that the UK must nurture. This cannot, however, come at a cost to our nation’s safety and integrity.