As the fallout from the Guinness affair continues, the British government is doing everything it can to assure investors that the city of London is still a clean place in which to do business and that the country's securities markets are well-policed.

Amid calls for tougher supervision of the financial services industry, the government insists that existing laws and new powers that will become fully effective later this year are more than sufficient.Only two questions need to be asked, claims Michael Howard, the corporate and consumeraffairs minister: Has the government taken sufficient powers to regulate the city; and are those powers being applied vigorously and effectively? The answer to both is an emphatic yes, says Mr. Howard.

His defense of the regulatory arrangements came during a week when further evidence emerged of the huge scale of the support operation for Guinness shares and when further resignations were announced.

Following the sacking a fortnight ago of Ernest Saunders, chairman and chief executive of the giant drinks group Guinness PLC, over alleged illegal share dealings, there were several more casualties last week.

Christopher Reeves, the chief executive of Guinness's merchant bank Morgan Grenfell, stepped down on Tuesday, together with the head of the bank's corporate finance department. Two days later Lord Spens, managing director in charge of corporate finance at another merchant bank, Henry Ansbacher, resigned over his bank's involvement in the scandal at the insistence of the Bank of England.

Also last week Gerald Ronson, head of the U.K. group Heron Corp., admitted that his company had been paid nearly $9 million by Guinness to buy Guinness shares during the height of its takeover bid for The Distillers Co. last year. The money has been returned.

A second company, the commodity group S.& W. Berisford, subsequently disclosed that it received a payment from Guinness in return for purchasing

Guinness shares.

Inspectors from the Department of Trade and Industry are examining all

Guinness share transactions undertaken during the time of the bitterly contested Distillers takeover battle to determine whether or not the share price was unlawfully manipulated upward in order to help the Guinness bid.

If wrongdoings are uncovered, the government contends that there will be no cover-up.

"Where evidence of misconduct becomes available, then we are determined to act quite firmly to make sure that those who are responsible for any such misconduct are brought to book," Mr. Howard stated last week.

There is absolutely no question of pulling any punches regarding law enforcement for fear that an over-zealous supervisory system might drive business away from the city of London, he said.

Neither is he unhappy with the regulatory arrangements in force. Under the Companies Act, government inspectors have wide-ranging powers to interrogate and ask questions, which must be answered on pain of punishment for contempt of court. They also have the power to call for papers and documents.

It is for possible breaches of the Companies Act that Guinness is being investigated.

Secondly and separately from the Companies Act, insider dealing has been a

criminal offense in Britain since 1980, but last week the secretary of state for trade and industry, Paul Channon, announced plans to raise the maximum jail sentence from two to seven years. The government admits, though, that the prosecution record has been poor because of the difficulty in obtaining evidence that would satisfy a court of law.

Recognizing this problem, the government has taken new powers under the

Financial Services Act that will help investigators in gathering the necessary evidence.

The new act also confers statutory powers on the secretary of state to regulate the conduct of investment businesses. The minister can transfer these powers to a designated body which, in this case, is likely to be the Securities and Investment Board.

The SIB is a private sector body which, assuming it does become the designated agency, will be responsible for authorizing investment businesses, will have the power to prosecute in some instances and also the right to deprive businesses of their authorization to carry out investment activities.

These new arrangements will not be completed until later this year but once in place, the government is convinced it will have set up a fully effective regulatory system that will ensure that London's securities industry operates to the highest possible standard, and one sufficiently flexible as to be able to respond to changing market practices.

In the meantime Mr. Howard, the minister responsible for steering the

Financial Services Bill through Parliament, says, "The extent to which there has been a departure from the highest standards of conduct we expect from the city is very small, and I have no reason to suppose that the city in general is anything other than the clean place in which to do business that it has been in the past and that it is the government's determination to ensure that it will continue to be in the future."

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