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. Last Updated: 07/27/2016

London's Luster Dimmed by Scandals

LONDON -- Straddling time zones in New York and Tokyo, London holds a powerful seat at the table of world finance. It is the largest foreign exchange market and a center for banking and commodity trading.


A trading scandal on the commodities markets is the latest mess to tarnish the image of the "City,'' as London's business district is known. Copper trading by Yasuo Hamanaka, the fallen star at Sumitomo Corp., cost the Japanese company $1.8 billion -- more if some analysts' predictions come true -- mainly on the London Metal Exchange.


Although the debacle is seen basically as Sumitomo's misfortune, the subsequent market turmoil and a wave of investigations around the world have thrust London and its financial regulatory system into the spotlight.


"Clearly, London suffers a lot, when you have Barings, followed by Sumitomo -- and the others,'' said John Board, a lecturer at the London School of Economics.


London's previous big embarrassment was the downfall of Barings PLC. Britain's oldest investment bank went bust last year when Singapore -based trader Nick Leeson lost all its money gambling on Asian markets. Leeson is now in jail and Barings is owned by ING Group, of the Netherlands.


Before Barings, London was hit by:


?the failure of the Bank of Credit and Commerce International, in which the Bank of England was criticized for haphazard regulation.


?the collapse of Robert Maxwell's publishing empire, after he died at sea and financial irregularities emerged.


?massive losses that threaten the survival of Lloyd's of London, the fabled insurance market. Some investors blame unscrupulous insiders.


The rules here are considered looser than those in New York, and regulation is more light-handed.


Markets in London are monitored by "self-regulatory'' bodies made up of members of the industry and funded by levies on the industry -- as opposed to the U.S. system in which powerful government agencies such as the Securities and Exchange Commission and the Commodity Futures Trading Commission keep a close eye on trading.


But officials in London say periodic shocks to the market as players go bust may be nothing more than the price of free enterprise. Financial players say tighter regulations are unnecessary, and the Corporation of London touts its ability to draw companies -- such as the 547 foreign banks that have set up shop here, more than any other city.


"It's hard to find specific regulatory failings,'' Board agreed. "A lot of things perceived as regulatory failings are, frankly, stupid commercial decisions made by companies.''


Despite assurances that things run well, the London Metal Exchange said last week it had asked Britain's Securities and Investments Board to review the way it does business -- and to look at how the market can deal with damage caused by outside parties such as Sumitomo that it cannot regulate.


London gets another black eye for the repeated failure of Britain's Serious Fraud Office to win convictions in high-profile cases like the recent trial of Robert Maxwell's sons, Kevin and Ian.