London loses to New York as preeminent financial center for second year in Duff & Phelps Global Regulatory Outlook 2020

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With Brexit deadline afoot this week, London is losing trust even further as a most important financial center. The declining trust is also strengthened by the latest findings in Global Regulatory Outlook (GRO) report of the global advisors Duff & Phelps.

  • Just 34% of senior executives put London as the world’s preeminent financial hub, 20% decrease in two years.
  • War on talent (23%) and Cost of Compliance (21%) are the biggest concern for firms and financial professionals.
  • Financial professionals say UK has the most favorable regulatory regime for financial services (30%), followed by the U.S. (26%) and Singapore (18%).

The survey shows that only 34% of senior executives see London as preeminent financial hub with 20% decrease over the last two years. New York has gained momentum with 56% this year, a 33% growth for the last two years.

A significant lack of confidence is suggested by the recent survey even as trade talks between EU and UK are in progress. To the question where the world’s most powerful financial center will be in five years, responses put both London and New York in decline. Although New York’s position is weakening at a slower rate as 50% still expecting it to be the leader, UK’s future looks far dimmer. Only 22% see London as the preeminent financial hub in five years’ time.

In fact, very few respondents see any European city as the major financial center in five years. Cities such as Paris or Frankfurt with 1% and 2%, respectively, do not threaten New York or London’s position. Their place is challenged by emerging centers like Hong Kong (4%), Singapore (5%) and Shanghai (9%), in particular.

Managing Director and Global Leader of Compliance and Regulatory Consulting at Duff & Phelps Monique Melis, said:

Monique Melis

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 preeminent financial hub in 2018, it could be that the shock waves 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. After all, 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.

However, financial professionals, notably 30%, consider UK to have the most favorable regulatory regime. The survey puts the US second with 26% and Singapore third with 18%. Among the biggest issues the financial market faces are the cost of compliance (21%) and the war for talent (23%). The cost of compliance has significantly grown with 33% of firms spending over 5% of their budget on compliance, an 11% increase from 2018.

Monique Melis commented:

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.

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