Will London retain its status as the financial capital of the world?

When the spectre of Brexit first reared its head after the referendum in June 2016, many speculated that leaving the EU could threaten London’s status as the world’s financial capital.

While the machinations of cities such as Frankfurt and New York may have perpetuated these fears, however, the most recent figures show that London held onto the top spot for financial and professional services when compared against other major fiscal cities.

We’ll explore this further in the post below, while asking how and whether London can continue to retain top spot in the near-term.

London Continues to Fight Off its Competitors

The recent survey that reaffirmed London’s status took an estimated 91 separate metrics into account, and while different cities led according to some measures, the UK capital maintained the strongest competitive offering overall.

More specifically, London recorded a competitiveness rating of 62, which saw it move back ahead of New York (54) and retain a strong lead over Singapore (53).

Next up came the much-vaunted Frankfurt with a score of 41, which was tipped to steal business from London and claim a considerably larger share of derivatives trading in the immediate aftermath of the Brexit vote.

Derivatives such as currency (particularly the widely traded Euro) represent huge business for the lowest spread forex broker sites in the marketplace, but London continues to retain at least some access to this huge market niche as the UK and EU prepare to negotiate a bespoke deal for services (we’ll have a little more on this below).

London also pulled further ahead of Hong Kong (40) and Tokyo (39), giving hope to fiscal firms and service providers that continue to operate from the UK capital.

The Role of Innovation and the Future of London’s Financial Status

It’s innovation that continues to underpin London’s status as a leading financial hub, particularly from the perspective of business infrastructure and operational resilience.

London also benefits from its unrivalled global connections and the advanced cybersecurity framework that has been developed throughout the UK, along with innovative digital security measures that enable firms and institutional investors to operate with complete confidence.

This level of innovation is also underpinned by London’s globally renowned universities and MBA programmes, which continue to produce a market-leading pool of talent that create a forward-thinking and agile workforce well into the future.

However, Brexit undoubtedly poses a long-term threat to this status, particularly when you consider the aforementioned financial trading market.

While London remains competitive in this space, for example, Amsterdam recently overtook the UK capital as Europe’s largest share trading centre. This process saw Amsterdam rise from sixth as its daily trading volumes surged from £2.3 billion to £9 billion in January 2021, pushing London (with daily trading volumes of £8 billion during the same period) firmly into second.

This is largely due to the failure of the UK to achieve equivalence status for financial services in the EU, creating a scenario where exchange operators such as the CBOE and Turquoise had to relocate their order books overseas by January of this year.

So, if London is to maintain its recent performance and remain the world’s leading financial and trading hub, much will depend on its ability to strike a comprehensive deal on services with the EU and restore its equivalence status.

This is by no means guaranteed, however, especially if the UK government wants to diverge in terms of financial market regulations and instead pursue markets outside of the single bloc.