London's status as top financial centre under threat
The Northern Rock crisis, tax changes for non-domiciled UK residents, more onerous European rules and US regulatory improvements could combine to cast London off its perch as the world’s top international financial centre, according to a leading economist.
London has topped the charts among the world’s financial centres in all three bi-annual research reports commissioned by the City of London since last year, but saw its lead over New York cut in the most recent report in March to just 0.9%.
With the next report measuring the top financial centres due out next month, Ruth Lea, economic adviser to Arbuthnot Banking Group, believes London’s leading position is under threat.
She said in a report on Monday: “London’s positions as the world’s leading financial centre cannot be guaranteed. The international challenges from New York and other centres are only too real.”
She added that the fact that London’s lead over New York narrowed between September last year and March this year should provoke “disquiet”.
“Using findings from the third financial centres index report, there are at least two possible major reasons for the reduction in London’s lead. Firstly, the reputation of the UK regulatory environment has been damaged in some markets by the financial instability at Northern Rock. The Chancellor’s proposals [to reform the regulatory regime] are unlikely to be radical enough to satisfy the concerns of the financial sector. Secondly, the proposed changes to tax regime for non-domiciled UK residents.”
Lea said that “US authorities, aware of the damage to New York as a financial centre of the Sarbanes-Oxley legislation, have used their power to unilaterally mitigate some of its most difficult aspects. By comparison, the UK, faced with an increasing volume of EU regulations, cannot unilaterally amend or repeal any of them if they prove to be disadvantageous and damaging to the City of London.”
The UK regulatory climate is coming under increasing influence from European regulators, argued Lea, adding: “It is likely there will be yet more, much more regulation from the EU. It risks undermining the relatively benign regulatory regime and detracting from London’s international competitiveness.”
--write to vahuja@efinancialnews.com
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