The financial crisis has hit the Eurozone like a wrecking ball and none of the key financial centres in the region have escaped the fall out - Madrid, Dublin, Milan, Athens, even Luxembourg have all been particularly hard hit. Outside of this area, the financial centres of London, Zurich and Geneva actually seem to have weathered the storm relatively well, with London maintaining its hold as the pre-eminent global financial centre and the key Swiss Cities leading the pack on continental Europe (Source: Z Yen GFCI 10.5 Report).
Benchmarking London against most other global financial centres, London has a number of distinct advantages: it is in a convenient time zone to engage with US, European and Asian audiences; it has a developed financial infrastructure and robust regulatory regime, and has a pool of skilled workers with expertise in finance as well as support services such as accountancy, legal and IT. However, London cannot afford to rest on its laurels. Competition is rising, particularly from the East, as financial centres such as Hong Kong, Singapore, Seoul and Shanghai have emerged as pretenders to London’s crown and are beginning to catch the eye of global institutions assessing their jurisdictional options.
Relocating however is not something that any major corporate should undertake lightly. There needs to be a compelling rationale for this action, justifiable to shareholders, given the cost of time, effort and money – as well as the expected PR back-lash. Onerous regulation such as bank ring-fencing is unlikely to be seen as anything more than a large thorn in the side, but an oppressive tax regime has already demonstrated its ability to drive corporates into the arms of more favourable tax centres. It is not just about the carrot of low tax however, there has to be a demand from the new financial centre and its regulatory capability needs to be both willing and able to handle the extra burden of monitoring an extra major global institution.
As things stand, the UK remains one of the most sophisticated regulatory jurisdictions globally, despite the EU commission’s push on more stringent regulation. London provides a secure and transparent environment in which firms can operate, grow and remain stable. And short-term, but superficial attractions need to be considered with the utmost care by anyone considering leaving.
But, as the UK and Europe risk making themselves less attractive through increased tax and regulation, rival financial centres will become more attractive as they develop more stable regulatory regimes and develop their skills base. Gradually, they will lure more companies and might ultimately lift London’s crown