The London Stock Exchange is at risk of losing its status as the premier financial centre in the world. This is the conclusion drawn from the latest benchmarking data collected for the City of London Corporation. For the past three years, the local authority that governs the stock exchange district in the British capital has been assessing the competitiveness of the main financial centres on the basis of 95 criteria.
According to the latest surveys, London and New York are now ranked top among the world’s financial centres. This makes 2022 the first year in which London no longer holds the sole pole position. At the same time, other financial centres such as Frankfurt and Paris were able to increase their attractiveness faster than London.
In the study, London received an overall competitiveness rating of 60 points, up from 59 points in the previous year. New York was able to improve the valuation by two points due to its high growth in tech investments and the issuance of sustainable financial products and equalize it with London. Singapore finished third with 51 points, while Frankfurt received 46, Paris 43 and Tokyo 35 points.
The impact of Brexit is likely the main reason for this development. Financial experts have been warning for years that after Britain’s departure from the European Union, companies would relocate their activities to the EU and London could lose its place as a top financial centre. Amsterdam has replaced London as the leading centre for stock trading in Europe. Two recent decisions show that the London Stock Exchange has lost its appeal. The Irish building materials group CRH decided on its first listing for New York and the British chip designer ARM plans its IPO in New York and not as originally planned in London.
Any greater loss of significance would have serious consequences. The financial industry is one of the most important pillars for the UK economy. According to the City of London Corporation report , the UK’s financial and business services sector generated the largest trade surplus of any country in 2022, at £64 billion.
London continues to perform very well in terms of factors such as innovation, the reach of its financial activities, resilience and corporate infrastructure, as well as in terms of regulation. A key factor in the future of the city is that Britain continues to attract international talent. Foreign employees make up about 40 percent of the workforce in the city.
The British government wants to counter the decline by means of a reform for banks and financial service providers. This includes a relaxation of capital requirements for smaller financial institutions. The rules that require banks to hedge their retail transactions with a capital cushion in order to protect deposits are also to be revised. In addition, it is intended to relieve institutions that are focused on business with private customers.
In total, many of the planned changes are likely to be of benefit mainly for the smaller banks. The British government also wants to promote competition in the sector, which is currently dominated by large banks such as HSBC, Barclays, Lloyds and NatWest. The government also intends to review EU requirements for equity and bond trading, known as “MiFID II”. The London stock exchange operator LSEG itself is adapting its business model to new growth markets. Similar to Deutsche Börse, for example, the LSEG is increasingly relying on data services such as the analysis of financial data for banks, asset managers and financial service providers.
Sources: Finews, Börsenzeitung 22.10.2021, Handelsblatt 2.3.2023