London overtaken by New York as ‘world’s pre-eminent financial hub’
London’s long-term status as the world’s pre-eminent financial hub has been lost amid the past three years of Brexit uncertainty, a new report has found.
The UK capital has long been regarded as the foremost global financial hub, but has fallen substantially over the past two years and been overtaken by New York.
The latest Global Regulatory Outlook (GRO) report, released by global advisor Duff & Phelps, surveyed senior financial professionals from around the world, and showed confidence in London as the world’s leading financial hub had fallen sharply.
The survey found that only 33% currently see London as the foremost global financial hub, falling more than 20% over the last two years.
Meanwhile, New York gained momentum this year, with the majority of respondents (56%) now regarding it as the world’s most important financial centre, a 33% increase over the last two years.
Even with trade talks between the EU and UK underway, the survey suggests a significant lack of optimism.
And when asked where the world’s most powerful financial hub will be in five years, respondents see both London and New York losing ground. While the decline for New York is relatively modest, with half (50%) still expecting it to be the leader, confidence in the UK’s future is far weaker. Just 22% predict London will still be the major financial centre in five years’ time.
However, very few respondents see any European city taking the lead as pre-eminent financial hub in five years.
The outlook for cities such as Paris or Frankfurt certainly does not come close to replacing New York or London with only 1% and 2% of respondents, respectively. Rather, it is emerging centres in Hong Kong (4%), Singapore (5%) and, particularly, Shanghai (9%) that are expected to see the biggest growth.
Monique Melis, Managing Director and Global Leader of Compliance and Regulatory Consulting at Duff & Phelps, said: “It is difficult to avoid the suspicion that three years of uncertainty since the Brexit vote has contributed to London’s fall.
“While London was still considered the pre-eminent financial hub in 2018, it could be that the shockwaves of the ongoing EU negotiations have started to show.
“If this is the primary reason for London’s changing fortunes, then the resolution of the UK’s departure could see it bouncing back.
“Afterall, the financial services sector contributes about 7% of the UK economy’s output and £29bn in tax revenues, so the UK Government has a strong incentive to make London a more attractive place to do business post-Brexit.”
If there is any consolation for the City, it is that the UK is considered to have the most favourable regulatory regime for financial services in the world.
Survey respondents rated the UK’s regulatory regime first (30%), followed by the US (26%) and Singapore (18%).
However, outside of Brexit, businesses are facing issues such as the cost of compliance (21%) and the war for talent (23%).
Indeed, the cost of compliance has continued to grow. The survey found that the proportion of firms spending more than 5% of their overall budget on compliance is now over a third (34%), an increase from 11% in 2018.
Monique Melis continued: “We must accept the fact that much of the global regulation we’re seeing is necessary to deliver a stable market. But we cannot ignore the impact that extensive, and often uncoordinated regulatory change has had on competition and services.
“Whereas big banks and other financial services giants may well be willing to shoulder the regulatory burden and costs, smaller organisations and low margin consumer businesses are both likely to suffer.
“If the Government can position the UK as having a more favourable regulatory environment and separate it from the red tape of European regulation, then we may see the UK win back its crown and attract new talent to the sector.”