London Loses to New York as Pre-eminent Financial Hub but Favorable Regulatory Regime Could Help London Bounce Back

London - With the Brexit deadline looming over London this week, confidence in the City as the world’s pre-eminent financial hub has dipped even further this year. This declining confidence is further reinforced by findings from the latest Global Regulatory Outlook (GRO) report released by Duff & Phelps, the global advisor that protects, restores and maximizes value for clients, which surveyed senior financial sector professionals from around the world.

  • Only 33% of senior financial professionals see London as the foremost global financial hub, down 20% in two years
  • Cost of compliance (21%) and war for talent (23%) are the top two concerns facing firms and senior executives around the world
  • However, senior executives rate the UK as having the most favorable regulatory regime for financial services in the world (30%) followed by the U.S. (26%)

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%) regarding it as the world’s most important financial center, 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. 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 center 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 centers 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 £29 billion 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 favorable 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 organizations and low margin consumer businesses are both likely to suffer. If the Government can position the UK as having a more favorable 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.” 

About the Report
The GRO survey was conducted from December 2019 to January 2020. This survey reflects the answers of 240 senior-level respondents from sectors such as asset management and banking from around the world, with over 70% institutions operating in more than one country.  

About Duff & Phelps
Duff & Phelps is the global advisor that protects, restores and maximizes value for clients in the areas of valuation, corporate finance, investigations, disputes, cyber security, compliance and regulatory matters, and other governance-related issues. We work with clients across diverse sectors, mitigating risk to assets, operations and people. With Kroll, a division of Duff & Phelps since 2018, our firm has nearly 3,500 professionals in 28 countries around the world. For more information, visit www.duffandphelps.co.uk.

Contact
Charlotte Webber, Rostrum
[email protected]

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