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London Loses Reigns As Global Finance Hub

London Loses Reigns As Global Finance Hub

London has surrendered its position as the world’s top financial centre to New York due in part to uncertainty over Brexit, according to a survey of senior financial services executives, the Financial Times reported.

London suffered a 19 percentage point decline as just over one-third of executives said they would choose the UK’s capital — down from 53 per cent in 2018. Meanwhile 56 per cent said they considered New York to be the world’s pre-eminent financial hub — up from 42 per cent in 2018.

“It is difficult to avoid the suspicion that three years of uncertainty since the Brexit vote has contributed to London’s fall,” said Monique Melis, the global head of regulation and compliance at Duff & Phelps, the consultancy that conducted the survey. “While London was still considered the pre-eminent financial hub in 2018, it could be that the shockwaves of the EU negotiations have started to show.”

However, Melis suggested that Boris Johnson’s thumping general election victory last month, which has paved the way for the UK’s exit from the EU on Friday, could give London a boost. “If this is the primary reason for London’s changing fortunes, then the resolution of the UK’s departure could see it bouncing back,” she added.

Although the UK’s planned departure from the EU may have restored some certainty to the market, questions remain for London’s financial services sector. Sajid Javid, chancellor, told the Financial Times last week that businesses should generally prepare for no alignment with EU rules, although he struck a less strident tone in a speech in Davos days later. On financial services, Javid told the FT that the UK’s preference was now for access to the single market to be based on “outcomes-based equivalence” with the EU — a system which would allow the UK to have its own regulatory regime as long as it achieved the same ends — such as consumer protection.

However, it is far from clear that the EU will agree to this demand. The results of the Duff & Phelps survey may bolster calls from City of London lobby groups who want the government to force financial regulators after Brexit to have an objective to promote the competitiveness of the UK. That is contentious, and something regulators have privately railed against, because it pitches them as cheerleaders rather than watchdogs.

The old regulator, the Financial Services Authority, had such a mandate, and its toothlessness was seen as exacerbating the causes of the financial crisis. While there has been great concern that Brexit will prompt an exodus of jobs and assets from the City to other European financial centres like Frankfurt, Paris and Dublin, the survey suggests that none of these cities is forecast to rival New York or London. Instead, senior executives are far more bullish about the prospects of Asian hubs, with close to one in five expecting that an Asian city will lead the pack in five years’ time. Chief among them is Shanghai, which respondents forecast would outpace Singapore or Hong Kong in the future. “That may worry the US just as much as the UK,” the survey concluded.

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