The 2018 Global Regulatory Outlook report by Duff & Phelps might continue to keep London at the top of the list of leading global financial centers, and no one disagrees—but a recent survey of senior financial professionals suggests change is in the air: Within five years, London may lose its Number One status.
If it does, London’s victory this year over New York may prove to be short-lived.
More than half of senior financial professionals surveyed by Duff & Phelps believe that London will give up the Number One spot by 2023, even though it’s shown major improvements in attitudes in recent years—enough to have catapulted it above New York this year, for the first time since 2013.
But Brexit has chipped away at confidence in London.
"There is still a lot of hard work ahead for the City if it wants to retain the top position in a post-Brexit climate. When it comes to shaping London's future outside of the EU, decisions taken now will be crucial in laying the groundwork for years to come," said Julian Korek, head of Compliance Consulting at Duff & Phelps.
According to the 23rd edition report of the Global Financial Index (GFCI), which researched 110 financial centers around the world, London and New York have managed to keep the two leading positions, while the gap between them has continued to narrow. Related: Meet The Hedge Fund Billionaires Club
But London recorded a smaller increase in rating than the other four top centers.
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There are now less than 50 points between the top five centers. Hong Kong remains in third place, followed by Singapore and Tokyo, while San Francisco and Boston moved into the top 10, replacing Beijing and Zurich. Rankings fell for all of the lowest 50 centers.
Not a single Western European city outside of London is among the Top 10 financial centers.
Asian is the biggest mover, with all leading financial centers improving their ratings with significant rises in the ranks for Qingdao, Bangkok, Kuala Lumpur and Busan. Tianjin and New Delhi are new entrants to the GFCI.
All centers in North America achieved improved ratings moving on the list accordingly, except Washington, D.C., which dropped 20 paces, and Montreal, which dropped one place.
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All centers in the Eastern Europe and Central Asia suffered a fall in their ratings, expect Cyprus, Istanbul and Moscow which recorded a rise in the ranks. In the Middle East and Africa, only Dubai and Abu Dhabi increased their ratings. All centers in Latin America and the Caribbean fell in the GFCI ratings except for the Cayman Islands.
Frankfurt and Dublin are two centers on the list which are likely to become more significant—a fact that has been recognized by Bank of America, which selected Dublin as the location for some of its activities, and where JP Morgan Chase has acquired a new office.
Morgan Stanley picks Frankfurt as its post-Brexit hub.
And Frankfurt has definitely pricked up its ears. When the UK leaves the European Single Market via Brexit, financial firms in London won’t have any more ‘passporting rights’, according to the Sheffield Political Economy Research Institute.
“This means that many UK-based banks and other financial institutions will need to relocate a significant portion of their operations, capital and staff alternative financial centres which remain inside the EU,” the institute said.
The first stop may very well be Frankfurt, which has a number of advantages, including economic and political stability, the location of the European Central Bank and the Bundesbank, along with a slew of highly reputable regulatory bodies. followed by Dublin, Paris and Luxembourg.
By Josh Owens for Safehaven.com
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