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Global finance centres: London retains its edge in Europe

Author: ICAEW Insights

Published: 29 Mar 2021

London remains Europe’s major global finance centre despite Brexit and retains its second-place ranking in a list of the best financial centres around the world behind New York, according to new research.

In January, Amsterdam overtook London as Europe’s top share trading hub by share volume, with an average of €9.2bn-worth of shares being traded every day in the Netherlands, compared to €8.6bn-worth of daily share trading in London. 

However, the latest Global Financial Centres Index (GFCI) produced by City of London commercial think tank Z/Yen finds that London still has the edge as the leading financial centre in Europe, ahead of Frankfurt, Zurich and Luxembourg. Berlin entered the index for the first time, ranked 45th.

The GFCI is based on analysis of instrumental factors and feedback from more than 10,000 individuals working in financial centres around the world across five main areas of competitiveness – business environment, human capital, infrastructure, taxation, reputation and financial sector development. New York takes the lead position in four out of the five areas. 

London is ranked highest for financial sector development, which ranks sectors according to depth and breadth of industry clusters, availability of capital, market liquidity and economic output. Singapore, Hong Kong, Beijing, Shanghai, Shenzhen, and Zurich feature in the top five centres in one or more areas.

The average rating of centres in the index dropped only 3.5 points since September 2020, which Z/Yen suggests may indicate more confidence in the financial system than in the first stages of the covid-19 pandemic. “The fact that overall ratings have not recovered to the levels that we saw in 2019 reflects the continuing uncertainty around international trade, the impact of the covid-19 pandemic, and geopolitical and local unrest,” the report says. 

However, Professor Michael Mainelli, Executive Chairman of Z/Yen, said GFCI 29 ratings had not returned to the levels of 2019, reflecting a welter of instability in international trade, politics, and economics, not least large-scale interventions by central banks and questions about the future treatment of commercial banks, insurers, and payment providers. 

“‘Building back’ will see major changes to investments and taxation. GFCI is most active on the Pacific Rim. Only 44 points on a thousand-point scale separate the top 10 centres. A four-point rise would place Singapore second only to New York. It’s tight at the top, and no time for complacency,” Mainelli said.

The report highlights an expectation in organisations of all sizes of a shift from office to home working, although smaller organisations with fewer than 50 staff expect to spend most time – 50% - in an office. Respondent feedback suggests the shift to online working and video conferencing is set to continue, staggered hours will become the norm and employment routines are likely to be more flexible. 

“Financial centres will remain important, differentiated by regulatory structures, ethics and values, although they may be organised as a looser network across a wider geographical area,” the report says.

Laurence Li, Chairman of the Hong Kong Financial Services Development Council, said the challenges of the past year had forced the financial services community to adopt new approaches to operate; and practitioners have strived hard to deliver productivity in the remote work setting. “Fortunately, despite all the hurdles, global financial markets have demonstrated resilience.” 

“While the pandemic has yet to permit full resumption of close physical connectivity through ease of business travel, this does not stop us from working together – in financial innovations, sustainability, and so many other aspects,” Li said. 

Read the latest Global Financial Centres Index (GFCI)

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