A mood of impending doom is growing over what will happen to London as a financial centre after the UK leaves the EU. But is it justified? AML’s CEO, Ian Henderson takes another look.
Did you know that London was voted the world’s top financial centre in 2018, for the first time in five years? The annual survey by Duff & Phelps showed a big jump (from 36% to 53%) in preference among finance professionals, which might seem counterintuitive given the number of headlines about banks moving their operations to Frankfurt, Paris or Dublin ahead of Brexit.
The same survey, however, says that those same professionals aren’t as optimistic about London staying above New York or other leading cities in another five years – only 29% think it will remain at the top of the tree. Brexit, as you’d expect, is the main reason for this, although other centres such as New York and Hong Kong have their own political and social uncertainties to deal with. (The next EU city to appear in the list is Frankfurt at 20, followed by Luxembourg, with Paris at 24.)
Despite the pessimism, there are reasons to believe Brexit will have less impact on London as a financial centre than many fear – and that change, if it comes, will happen relatively slowly. For one thing, ‘soft’ measures such as reputation, infrastructure and quality of life aren’t going to change quickly, if at all. London will still have its theatres, its landmarks, its schools, its healthcare, its connectivity, its time zone and, of course, the English language. All of this makes it a more attractive place to do business than say, Frankfurt or Paris.
More important is the availability of human capital – people. People have lives and families outside of work, so they enjoy being in a city like London. There are plenty of trained, motivated finance professionals still keen to bring their skills from all over the world. People may well want to come to London even more if, as some predict, property becomes more affordable after Brexit. That said, an extreme left-wing government (still another distinct possibility) which sees the finance sector as largely populated by exploitative capitalists may reduce the city’s appeal.
As well as a concentration of expertise, London has the world’s best combination of legal system, regulatory framework, sensible taxes (for the moment at least), low levels of corruption and economic freedom. And, according to some of the smarter Leave exponents, the British legal system’s incompatibility with the European system could mean that moving outside the ECJ may continue to work in London’s favour. London could continue to develop as the clearing house between the world’s financial systems and therefore a centre of excellence for its related services.
To be clear, I’m not a Leave voter and this is not a propaganda piece. I am, however, an optimist and an entrepreneur. Our London-based independent agency is heavily involved in the finance sector, working with firms in the UK, Europe and around the world. At the time of writing, those include the biggest banks in Germany, Switzerland and Japan; leading firms in France, the Netherlands and the USA; and many UK and offshore FinTechs, advisers and innovators.
Obviously, we hope the main reason those firms come to us is for our understanding of how they work, our smart strategic advice and our snappy creative thinking. But we realise it’s also because we’re part of the London financial cluster; we can easily partner with other advisers, draw on a deep well of human capital and connect with our customers around the world. So we have a vested interest in the continuing strength of London – and a weakened pound has made our services even better value.
We hope for a strong, open and constructive relationship between Britain and Europe. And we hope the same can be true of other global markets and centres too, despite the rising tide of protectionism around the world. We believe that the UK government should invest in infrastructure and systems and in marketing London as a global business brand. Meanwhile, we will keep on doing what we do as well as we can do it. If that doesn’t work, there’s always Paris.
Written by AML’s CEO, Ian Henderson.
Published by Chartered Banker