The City of London has evolved over the years to become the leading destination for banks, financial institutions, corporates, and multinationals. London is routinely the premier destination for the world’s elite financiers, with the Lord Mayor of London inviting society’s well-heeled elites to the annual City Banquet. The City of London is steeped in tradition, and has an established reputation as being the centre of international trade and commerce.
Back in 1986, the UK government transformed the LSE (London Stock Exchange) to make it easier to invest and trade in the United Kingdom. The rapid transformation of the Canary Wharf area has been nothing short of remarkable, and now financial enterprises pepper the London skyline like never before. The number of people employed in Canary Wharf dwarfed the number of people employed in all of Frankfurt, Germany by 2006.
The rapid growth and development of the City of London as a global financial destination has been unparalleled, thanks in large part to business-friendly regulations, a sprawling network of financial enterprises, and its proximity to Europe and other global destinations.
Major Financial Corporations Drop Anchor in the City of London
Major corporations such as BNP Paribas, Goldman Sachs, JPMorgan, HSBC and others pepper the skyline, and continue to do so despite the outcome of the Brexit vote. London has also become one of the most sought-after destinations in terms of real estate, with property prices rising through the roof. Financiers, investors, and conglomerates have invested heavily in the City of London, and this continues to feed its reputation as a leading global enterprise. London’s transformation began in the 1960s and the 1970s.
It was the UK’s focus on business-friendly regulations that attracted foreign capital and cemented the UK’s position as the #1 favourite global destination for international finance. Businesses could focus on their offshore currency holdings, notably dollars that were not held in US companies and institutions, but in foreign banks. The big change came with the liberalization of the LSE, and trading in UK shares. The rise of the EUR strengthened the UK’s position as a popular destination for international finance. Trillions of pounds sterling in hedge funds are traded in the UK. This trend may slow somewhat, but it remains strong.
Is There Competition from Abroad?
The Brexit issue has certainly complicated proceedings to a degree. Several financial corporations are either relocating part of their business operations abroad, or closing up shop entirely, fearing the worst. However, Britain has 2 years to negotiate a Brexit strategy that will likely put in place a series of agreements to allow UK banks and European banks to continue trading with a new framework in place.
To guard against a possible forfeiture of passporting rights, many financial institutions are looking to diversify their operations to other cities around the world. Despite this, London remains a powerhouse for financial enterprises. FX providers in the UK are among the most successful and prolific in the world. The total value of Forex traded globally amounts to approximately $5.1 trillion (2016).
A report from January 2015 indicated that the value of Forex trading in the UK amounted to $2.67 trillion per day, according to the Bank of England. That means that the UK accounts for more than half of global Forex transactions. Other cities are vying for their slice of the financial market.These include Hong Kong, Singapore, New York, and Tokyo. Unfortunately, for the latter city, many foreign listed corporations have left Tokyo since 2012, from a high of 127 to just 5 by July 2017. This is due to the nature of business operations in Japan, which is more introspective than the open societies of New York, London, even Hong Kong.
Japan certainly has the financial infrastructure to cater to international trade and finance corporations, although a paradigm shift would need to take place in the business culture. Households in Japan have significant cash holdings, which has nullified monetary policy in the country. Tokyo could rise as a viable alternative to London, but significant groundwork would have to be undertaken. Currently, no other European city rivals London as an economic powerhouse.