Chris Middleton reports on how finance is becoming a New York state of mind at London’s expense. But for how long?
New York has consolidated its position as the world’s leading financial centre, opening up a growing lead over second-placed London.
That is according to the latest survey of senior financial professionals from industry consultants Duff & Phelps.
The firm’s Global Regulatory Outlook survey spoke to 245 leading figures from the worlds of banking, asset management, and financial services worldwide.
According to the report, 56 percent of respondents regard Wall Street, the US financial centre, as the world’s pre-eminent money hub, with just 33 percent favouring London.
In the previous edition published in May 2019, 52 percent chose New York and 36 percent London, while the 2018 edition found 53 percent favouring London and 42 percent New York.
Decline in confidence
This means that the City has declined by 20 percentage points in just two years in the minds of leading finance professionals: a signal loss of confidence that has been attributed to the corrosive effects of Brexit.
Just 22 percent of financial leaders now predict that London will be the major financial centre in five years’ time.
Since the 2016 referendum, nearly $1 trillion in banks’ balance sheet assets have been moved out of London to either Germany or Ireland, according to Bloomberg’s Brexit Impact Tracker, which also reveals thousands of jobs relocating from the City.
“It is difficult to avoid the suspicion that three years of uncertainty since the Brexit vote have contributed to London’s fall,” said Duff & Phelps Managing Director Monique Melis.
But not everything is going America’s way, according to the report. Both New York and London are set to lose ground over the next five years to Hong Kong, Singapore, and Shanghai.
The world’s sandbox?
However, the survey also found that London remains the most favourable regulatory regime for financial services in the world.
“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,” said Melis.
Divergence from European rules on finance could be a mixed blessing in terms of the UK’s ability to combat money laundering and financial crime, and could be designed to offer a more relaxed regime.
Chancellor of the Exchequer Sajid Javid caused consternation in the UK business community this month when he told the FT that there will be increased divergence from EU rules.
“There will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union, and we will do this by the end of the year,” he said on 17 January.
Earlier this month, European Commission President Ursula von der Leyen said that the EU’s offer of tariff-free, quota-free trade would be dependent on the UK’s continued alignment with its core rules and regulations.
Either way, the Duff & Phelps findings come at a difficult time for the UK, which formally leaves the EU on 31 January.
An 11-month ‘business as usual’ transition period follows, after which the future terms of Britain’s trade and regulatory relationships with Europe and the world are largely unknown – despite over three years of discussions.
But that did not stop the Chancellor from adopting a bullish tone on the world stage last week. Speaking at the World Economic Forum in Davos, Javid – the UK’s sole government representative – claimed that uncertainty is over and Britain’s reputation for political stability has been restored.
- Alongside New York’s perceived dominance in finance, the US is also growing in strength as a financial technology centre, as Transform Finance reported last year.
- According to tech market analysis firm CBInsights, in 2018-19 venture capitalists invested $46 billion in US FinTech startups across 2,800 deals – a 92 percent year-on-year uptick in funding.
- While the UK’s fast-consolidating sector tends to be based in the capital, the US FinTech industry is booming across 35 states – 70 percent of the country – rather than solely in technology hotspots such as California and Texas, or financial centres such as New York.