The City of London is exploring ways to maintain its standing as a top financial services hub amidst competition from EU cities in the post-Brexit era.
Boyden's perspectives on the news and trends that are transforming industries
Uncertainty around Britain’s departure from the EU was bound to rattle financial markets. Right from the start, some European shares shifted from London to cities like Paris and Amsterdam. London’s share of euro-denominated derivatives trading fell. But the City has set about regaining its footing, and a series of reviews and consultations on issues such as IPOs and trading regulations have taken place. “The United Kingdom is not going to sit still and watch its financial services move” to other cities, said Alasdair Haynes, founder of Aquis, a London trading venue and stock exchange.
The financial services sector makes up 7% of Britain’s GDP, bringing in £132 billion or about $170 billion in 2019. The sector benefitted from membership in the EU, which established London as a financial base for the bloc. Business boomed, particularly in exports of financial and other professional services, four-tenths of which go to the European Union. Now the relationship between Britain and the EU is in transition.
Both sides recently negotiated a memorandum of understanding to establish a forum to discuss financial regulation, but it remains unsigned. It is clear that the EU wants to build up its own capital markets. Andrew Pilgrim, who heads EY’s government practice in financial services in London, says the EU is focused on having autonomy over its own financial services and not being reliant on Britain. At the same time, the prospect of creating its own financial rules holds a certain appeal for Britain. The challenge will be to attract more business while maintaining its high regulatory standards.
Various plans have been proposed. Britain’s top finance official, Rishi Sunak, is especially keen on luring tech startups. “I want to make the United Kingdom the best place in the world for high-growth, innovative companies,” he told Parliament on March 3. That same day a government-commissioned review recommended changes meant to encourage tech firms to go public in London. One idea is to allow founders to maintain more control of their companies after going public. Unsurprisingly this does not have the support of London’s institutional investors.
The review, conducted by Jonathan Hill, a former European commissioner for financial services, also advocates being more accommodating to special purpose acquisition companies (SPACs) – essentially public shell companies that list on an exchange and look for private companies to buy. SPACs are popular in New York, and picking up speed in Amsterdam. The New York Times reports that there have been two SPACs each in London and Amsterdam this year; however the value of the listings in Amsterdam are five times that of London.
Fintech presents another avenue, and London has already built a reputation for successful financial technology companies like so-called challenger banks Revolut, Monzo and Wise (formerly Transferwise). The British government published an independent review of the fintech industry in February, and is acting on some of the recommendations for attracting more fintech firms. Green finance also has potential, and could be heralded by the United Nations Climate Change Conference, which London will host in November.