the times | Wednesday October 14 2020 1GM 39

CommentBusiness

The hospitalty sector

has remained open for

much of the country

Life has to go on and therefore you

can’t simply write off the recovery

T

he City’s chief policeman

— in this case a

policewoman — has been

having a stern word. This

week Julia Hoggett,

director of market oversight at the

Financial Conduct Authority,

ordered firms to be as vigilant as

they had been before Covid-19 about

potential market abuse by their staff

and urged them to adapt their

thinking to the new ways in which

people can fiddle the books.

Financial institutions made huge

efforts in March to ensure that their

complex, split-second market

operations could continue to help

clients at a time of volatility and

uncertainty. However, as traders and

others work remotely, with some

conducting their activities far from

the CCTV cameras and compliance

teams of their offices, there is a

clear risk that abuses creep in. The

pandemic could end up being one of

the biggest breeding grounds for

economic crime in a very long time.

Ms Hoggett, herself a former

banker, spelt out the questions that

firms needed to answer. Which staff

should be considered insiders for

sensitive information? How should

you control the deliberate or

inadvertent spread of confidential

information to family or flatmates?

And what areas can constitute

sensitive information, such as

businesses’ use of government’s

furlough or lending schemes? Nor

are banks alone in the line of fire.

Workers at other businesses could

profit from trading on restricted

information.

Ms Hoggett’s intention was to

deliver the right amount of “sabre-

rattling”, but it may not be enough.

There is a risk that the FCA looks as

if it is not up to the task of adapting

to these changing times. The

regulator has imposed only four

fines this year, down by three

quarters from the same period in

2019, according to RPC, the law

firm. More widely, during lockdown

it appears to have been dropping

cases that had been open for years.

Clearly, the disruption of Covid

will have had a lot to do with that,

not least because of the practical

challenges, such as conducting

witness and suspect interviews, that

in the past have been done in

person. Yet some critics wonder if

the FCA is losing its zeal for

projecting a fearsome image to the

City and question whether its

change of leadership to Nikhil

Rathi, the former Treasury official

who started this month, signifies a

shift to Brexit wrangles and how to

manage potential turmoil for the

58,000 firms it oversees if there is

no deal on a future relationship with

the European Union from January 1.

Just as firms did well to prevent

systems failures as the pandemic

broke, the FCA and others have had

significant achievements: they kept

markets open and functioning,

allowing businesses desperate for

funds to raise money and investors

to trade to manage their risk. Now,

though, the FCA must act quickly

and go beyond a list of warnings. It

has to set out specific requirements

for firms, given that their challenges

are great — for example, how does a

bank really ensure that someone

sitting in his or her bedroom doesn’t

have a private mobile, open line or

camera giving access to someone

watching elsewhere?

Neil Swift, a partner at Peters &

Peters, the law firm, and an expert

on insider dealing, argues that the

FCA will need to take swift action

against anyone it finds to be

breaking the rules during lockdown

if it wants to live up to its own

credible deterrence policy. That will

not be easy and it could help to

explain the regulator’s apparent

move away from other old cases.

The issue is pressing, as many

firms that had hoped to sweep staff

back into the office feel that they

cannot force the issue until a

vaccine is found. Ms Hoggett, who

joined the FCA during the Libor-

rigging scandal in 2014, pointed out

that wrongdoing was often found

after a financial crisis. This time

round, the conditions look almost

perfect for abusing the market. The

FCA’s reputation is on the line.

David Smith

Katherine Griffiths

There is a lot of

gloom around, as

even somebody like

me, with a naturally

cheerful disposition,

has to concede. The news on Covid-19

is gloomy. After a summer respite and

an outbreak of complacency,

including from the government, it is

all ending in tiers.

Unemployment is now 4.5 per cent

of the workforce, or slightly more

than 1.5 million people; redundancies

are soaring and self-employment is

tumbling. The week started with a

7am alarm call from the Bank of

England, saying that it had written to

the banks to check their readiness for

negative interest rates. Even the latest

monthly gross domestic product

figures were widely regarded as

disappointing, rising by “only” 2.1 per

cent in August, less than half what

markets had expected. The “V-

shaped” recovery apparently died a

death.

Let me, without wanting to sound

like Dr Pangloss — or, if you prefer,

Mr Blue Sky — try to offer a

corrective to some of the gloom.

None of this should be seen as an

endorsement of the government’s

handling of the coronavirus

pandemic.

When I wrote here on May 13

about the shape of recession and

recovery, most of the economy had

not yet emerged from the national

lockdown. It was already clear to me

then, however, that April would mark

the low point of a brutal recession

and that the recovery from there

would be determined by the easing of

restrictions. As I also wrote, the test

of the recovery would not be whether

the economy had made it back to pre-

coronavirus levels by Christmas but

whether it took rather less time than

the recession average of three years

for GDP to get back to pre-

recession levels (five

years in the case of the

financial crisis).

On that basis,

things have been

going better than

expected. The

recession was less

steep than the

Office for Budget

Responsibility and

the Bank of England feared and the

recovery has been stronger than they

expected.

By August, according to the

monthly GDP figures, the economy

had grown by an extraordinary

21.7 per cent compared with April as

restrictions were eased — roughly

two thirds of what had been lost. As

for that “disappointing” August rise of

2.1 per cent, such an increase, if

achieved on an annual basis, would

exceed comfortably the economy’s

growth rate in any year since the

Brexit referendum in 2016. A 2.1 per

cent monthly growth rate, if it

persisted in the months to come,

would see monthly GDP rising above

pre-Covid levels by January. The

deepest recession for a century or

more would have been completed

within 12 months, although with

lasting hangovers in unemployment,

business failures and a permanent

loss of some growth.

I know what you are thinking —

that there is no way the economy can

have continued to grow in the wake

of the coronavirus’s second wave. Let

me have a look at that, starting with

September.

David Owen, an economist with

Jefferies International, an investment

bank, has assiduously tracked the

recession and recovery with a range

of economic activity indicators. They

showed something of a pause in

August, followed by stronger growth

in September, leading him to expect a

strong GDP figure for the month.

The British Retail Consortium

reported what it described as “the

first signs of an early Christmas” in

the five weeks from August 30, with

like-for-like sales up by a very strong

6.1 per cent on a year earlier. Official

retail sales are already well above pre-

pandemic levels.

Even amid the gloom of the labour

market figures, payroll

employment rose by 20,000

in September as the

economy opened

further. Though that

barely made a dent

in the cumulative

drop since March, it

was a step in the

right direction.

We will have to

wait a few weeks to

see what happened to

monthly GDP in

September and for the

third-quarter reading, which

looks to be on course for a rise of

about 16 per cent, but the upturn does

not seem to have come to an abrupt

halt in August.

You may be thinking, too, that it is

what happens from now on that is

crucial. The second wave is with us,

Downing Street press conferences are

back and each week brings new

restrictions. The recovery I sketched

out in May was dependent on

restrictions being eased gradually on

a path back to normality, not them

being reimposed.

All that is true, but two things stand

out in this phase. One is the

determination not to lock down as

much of the economy as before,

under the clear influence of Rishi

Sunak, the chancellor. Non-essential

shops are being kept open, as are

schools, as is the hospitality sector in

most of the country, if with restricted

trading hours. Workplaces have

adapted.

This is not, I should emphasise,

anything like a return to normal,

notably in parts of the country

subject to the most severe

restrictions, but there is more of a

balance between the science and the

economy than there was in the spring

and more evidence that the Treasury

is having to count the cost of its

extraordinary economic support.

Some people will say that this is a bad

thing and that we will pay a price for

trying to keep too much of the

economy open. But it is happening.

The second factor is public and

business reaction. Confidence is

clearly a key factor and the manner of

the government’s announcements,

including the lack of clarity in them,

has been confidence-sapping.

This may be wishful thinking, but I

get the impression that attitudes are

changing, that the coronavirus is

something we have to cope with for a

while yet and that life has to go on,

even if it is more restricted than

before. That may be a fragile basis on

which to say the recovery has further

to run, even over a difficult winter

that will be horrible for many, when

any optimism could be swept away by

the severity of the

second wave. But we

need a touch of

optimism amid the

deep gloom.

‘‘

’’

David Smith is Economics Editor of

The Sunday Times

[email protected]

Katherine Griffiths is Banking Editor

of The Times

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