London unshakable as top financial destination, even New York trails behind
Britain is now the world’s number 1 destination for all types of financial market investment. Here is our detailed report
There have over the years been many a dubious speculation relating to where the majority of the world’s financial investment transactions take place, however when a genuine report is generated by a respected multi-national auditing giant, it is worthy of attention.
The race for supremacy between New York’s Wall Street-based and incredibly historic investment banking sector and London’s Canary Wharf-based ultra-modern interpretation of a 300 year old financial markets tradition has been very closely contended for many years.
This week, Ernst and Young has compiled a report which cements London as the absolute powerhouse in terms of all types of financial investment business, whether it be hedge funds, Tier 1 electronic trading or inbound and outbound capital flow ratios.
Since 2014, North America has held the number one slot in terms of capital investment from global sources, and has since time immemorial been the largest and most successful economy on earth.
That may well have been the case previously, however for London, which is the capital city of a nation with 75 million people whereas New York nestles among a vast continental union of over 350 million commercially and socially aligned individuals in the most free market economy on the planet, this represents a milestone.
The as a nation has now displaced the US as the top investment destination globally, a position it had held since 2014.
The US was followed by Germany, China, France, Canada, India, Australia, Brazil and the United Arab Emirates in the rankings. The UK’s top sectors for investment were consumer products and retail, industrials and financial services. Despite what Ernst & Young called “mounting geopolitical complexities”, the report found the appetite for global M&A was at a 10-year high.
Almost six in 10 global companies are planning to make an acquisition in the coming year, up from 52% 12 months previously. Executives are positive about the global deal market, with 92% expecting it to improve in the next year, compared to 86% in April 2018.
Steve Krouskos, EY global vice chair for transaction advisory services, said: “Geopolitical issues create significant challenges, but executives are determined to overcome perceived barriers and secure – or expand – their presence in markets that support their long-term strategic goals. “While nationalism may fuel much political debate, technology has made the world a smaller place and executives remain international in their search for growth.”
How did London surpass Wall Street as the world’s finance capital? Partly it was due to favourable legislation, and partly to good positioning. London’s time zone means that its business hours overlap those of the Middle East, America and Asia – something which definitely put the city in good stead when it came to trading.
That said, the key event in London’s rise as the world’s premier financial hub was probably legislation passed the “Big Bang” reforms passed by Margaret Thatcher’s government in 1986. These were intended to remove the laws that were protecting Britain’s slow-growing firms and contributing to sluggish financial markets.
The results were immediate. From a network of small companies with very little potential for growth, London-based businesses grew overnight to become conglomerates of huge proportions, along with more advanced financial practices like virtual banking.
Even better news for UK businesses lay ahead. The Big Bang had created relaxed regulatory measures that allowed corporations to earn unlimited amounts of money between the 1980s and the early 2000s. Helping London further, in 2002, the US Congress tightened corporate regulations through the Sarbanes-Oxley reforms, which increased paperwork and put a cap on the local earning opportunities.
On this basis, London’s stock markets flourished: American firms were forced to adhere to the Sarbanes-Oxley reforms, but other international markets simply sidestepped them by taking their business to London instead, a dynamic reflected by the institutional trading clearing houses such as LCH.Clearnet which conducts its entire global trade clearing business from London.
London’s ability to dominate the world’s entire financial ecosystem was fomented through these actions, positioning it as the world’s number one hotspot for trading and business ventures. Within a few years London had captured more than 75% of the US exchange’s public stock, and US Congress was trying to win them back through softer regulation.
It could be perhaps a viewpoint that the US relies on a stringent and very comprehensive regulatory framework to administer its business, whereas the UK’s regulatory authorities are relatively lax by comparison, yet the business environment is at such an elevated level that it is almost self-regulating and self-innovating.
To gain a perspective on this from a governmental point of view, FinanceFeeds spoke recently to Adam Afriye, Conservative MP for Windsor, who was a member of the Science and Technology select committee from 2005 until its abolition in July 2007, has been the President of the Conservative Technology Forum and Chair of the Parliamentary Office of Science and Technology since 2010.
Mr. Afriyie is Chairman of Connect Support Services, an IT support company he set up in 1993. He owned two-thirds of DeHavilland, a political monitoring company, which was sold to publishers Emap in 2005 for £18 million. He was also a regional finalist in the 2003 Ernst and Young Entrepreneur of the year awards. He was a Governor of the Museum of London, a trustee of the Museum in Docklands and a director of Policy Exchange, a centre-right policy body.
Additionally, Mr Afriyie is a stakeholder of Axonn Media, a content marketing business which produces content for clients. The company incorporates brands such as Content Plus, NewsReach, DirectNews and ReelContent. Axonn turned over £9.4m in 2011 and made a pre-tax profit of £1.3m.
He is also the largest shareholder of the firm and he and his fellow directors split dividends of £2.2m in 2010 and 2011 and shared directors’ pay of £3.6m over the last five years.
This morning here in London, Mr Afriyie explained to FinanceFeeds ““London’s status as the global centre for Financial Technology did not come about by accident but rather due to the positive and supportive actions of British legislators, regulators and financial firms.”
“That’s why as the Chair of the All Party Parliamentary Group on Financial Technology I was so pleased to hear the FCA explicitly highlight RegTech throughout the whole of last year as a sector where they are committed to playing an active role in fostering innovation” – Adam Afriyie, Conservative MP
“More can be done to stimulate advances in the RegTech sector. The FCA’s Call for Input from July last year highlighted the pro-active, but limited, role that they can support the sector, in particular aiding the industry in defining standards and guidance. However, the FCA are also receptive to the role that Government cannot play, such as building one-size fits all regulatory solutions to an area with a great diversity in complex legacy infrastructure.”
“It is reassuring that we have a Government that recognises technology is the key to our continued economic vibrancy and that seeks to nurture and adapt to disruptive new technologies through the Industrial Strategy rather than try and stifle them” he concluded.
Now, with London becoming the platform capital of the non-bank trading world, this global talent base and holistic dominance is worth taking very seriously.