The Duff & Phelps Global Regulatory Outlook 2020 report says the position of London has slipped markedly against New York as the world's leading financial centre, as more than half of respondents to its survey placed the US city first against just a third who picked London.
Last year's Outlook saw 53% pick London, versus 42% who picked New York. Duff & Phelps says it is hard to avoid the suspicion that three years of uncertainty since the Brexit vote has contributed to the fall of London.
"Of course, if this is the primary reason, then the resolution of the UK's departure could see London bouncing back—and its government is likely to fight strongly for a sector that contributes about 7% of the UK economy's output and £29 billion in tax revenues," the report adds.
If there is any consolation for London, it is that relatively few see Paris or Frankfurt making great gains"
Looking ahead, however, the respondents remain pessimistic about London's chances. Just 22% predict it will still be the "major force" in financial services in the next five years, compared to 50% picking New York.
"If there is any consolation for London, it is that relatively few see Paris or Frankfurt making great gains. Rather, it is emerging centers in Hong Kong, Singapore and, particularly, Shanghai that are expected to see the major growth. That may worry the US just as much as the UK," the report continues.
"Within Asia, Shanghai looks to have the brightest future, according to respondents. No one says it is the preeminent center today, but, looking five years ahead almost one in ten (9%) see it taking the lead. That's well behind those who still think New York or London will dominate, but it's well ahead of those naming Singapore (5%) or Hong Kong (4%). Of the latter two, it's also worth noting that 18% say Singapore currently has the most favorable regulatory regime for financial services—well ahead of Hong Kong (11%)."
"Overall, it's notable that close to one in five (18%) see and Asian jurisdiction leading the financial world in five years' time."
The report outlines a number of key business risks for 2020 identified by respondents.
Top is "the war for talent" (24% picked it as the top risk) followed by cost reduction and cost of compliance (both 20%), investment style drift (9%) and liquidity risk (9%).
It also seems the case that cost of compliance is unlikely to come down. When asked about what factor will make the financial industry more environmentally responsible, investor demand was cited as the top factor (47%), but regulation accounted for a quarter (25%) of responses. Some 18% believe the change will come because of the industry's own desire to change. Yet, pressure from media/politicians (6%) was also cited.
Many respondents said they would like to remove particular regulatory regimes, such as Mifid II or GDPR - even though the latter was not brought about specifically to regulate the financial industry.
But, the report's authors suggest, factors such as the increasing impact of fintech in delivering new services and providers, such as challenger banks, is unlikely to encourage a retreat of existing regulation and/or legislation. ESG and fintech are likely to be the areas in which new regulation focuses in coming years.
For further insights from the report, click here: https://www.duffandphelps.com/insights/publications/compliance-and-regulatory-consulting/global-regulatory-outlook-2020
This article was first published by InvestmentEurope, a sister title to International Investment