The City of London has a lot to contend with as it sets out its five year recovery plan. Rejuvenating retail spaces devoid of footfall, replacing jobs lost to Brexit and rethinking the role of physical office space. At the same time, the European Union has not been shy about its intention to restore some level of financial autonomy and reduce its reliance on the City.
The Corporation has identified more than 100 different proposals to rejuvenate the UK’s financial centre, but it’s clear that the City must do more than simply hold on to what it already has. London needs a new vision. To start the new year, we asked four of our experts in H+K’s Financial + Professional services team for their take on the City’s opportunity to reinvent itself.
Doing things differently on regulation from now on?
Financial Services was marginalised and minimalised in the text of the final Brexit deal in December. Indeed, reports from the industry compared the lack of agreement to a “no deal” for FS and have already begun highlighting the challenges they now face. Since the start of January the UK Government has been liaising with financial services representatives for their input into a memorandum of understanding, so the City has a little longer to wait yet to understand what the future UK-EU relationship means for market access.
These discussions will be a pivotal moment to highlight the changes which the City needs the Government to make to secure its long-term viability and competitiveness.
Rishi Sunak has already indicated a desire from the UK Government to “do things a bit differently” in terms of financial regulation. While not having a completely free hand to change everything, we hope there are changes to help encourage new and emerging areas of finance, such as fintech and green finance; support to make UK more compelling as a listing destination for the biggest new firms; and the prioritising of building closer links with financial centres across the world, and not just in Europe.
Forging ahead on sustainable regulations
As the Brexit talks were finalised, it felt like we could finally get back to focusing on some of the big issues that have seemingly been overlooked during the prolonged negotiations. The focus on climate change and better ESG reporting is one such area. With COP26 months way and mandatory climate risk reporting set to be rolled out across the UK economy, it feels like 2021 is the moment for ESG to come to the forefront in the UK.
But as we cut ties with the EU, does this provide us with an ESG opportunity or challenge on our hands?
ESG reporting is already a confusing alphabet soup of acronyms and metrics, with differing reporting standards across geographies and sectors making it difficult for investors to get a clear sense of how a business is performing in this area.
While the EU progresses its own ESG framework and the UK pushes ahead with its own mandatory disclosures, we could be forgiven for thinking that further fractions in the system could dilute efforts rather than improve them.
While there is an opportunity for the UK to set some ambitious targets this year, I believe London’s best bet at assuming a leadership role will be as part of a collaboration with other financial centres, not by going it alone. As a bridge between Europe, the US and the rest of the world, London could help investors and the general public to make sense of the ‘alphabet soup’ once and for all.
A stable for fintech unicorns
London in the past decade has emerged as a major global fintech hub. One of the main contributing factors is the UK’s light-touch approach to regulation which has allowed fintech start-ups to quickly obtain licences to operate instead of having to wait years to be approved as a traditional bank. The UK also has a large and sophisticated domestic market that allows fintech firms to build a meaningful business that can then expand internationally.
Areas such as online payment and digital banking as a result has seen impressive growth, and the UK is now home to nine fintech “unicorns,” private companies valued at more than $1b, while the rest of Europe has just six.
And while Brexit certainly brings challenges, it is also seen as an opportunity for the UK fintech sector. Having the freedom to diverge from the EU’s rule book, UK regulators should focus on promoting even simpler, more open and dynamic regulations, to ensure fintechs can continue to thrive
A pivot to Asia?
There is a stream of thought that says Brexit has only accelerated an inevitable shift to Asia. Since 2006, the EU27 have seen their share of global financial activity fall steadily. According to thinktank New Financial, Chinese capital markets activity equalled Europe’s for the first time in January. Indeed, London was one of the first financial centres to recognise the potential of Beijing’s financial liberalisation and is already the biggest hub for trading Renminbi outside of greater China.
On the face of it then, is the future of the City in a shift to Asia, especially China? Unfortunately, it’s not so simple. Britain’s membership of the EU, as uneasy as it was, was built on shared values as much as it was shared borders. Economic co-operation flourished from a broad consensus about a rules based financial and legal system, about human rights and democratic process.
If there is one legacy of the Trump Presidency which will continue under Joe Biden it is a brewing economic and political conflict with China over just these issues. This is why, when the Commons returned after Christmas to discuss Britain’s post Brexit foreign policy priorities, it was China which monopolised the debate.
London will almost certainly try to have its cake and eat it. To work with China on economic matters and keep its distance on social and political issues, the City of London Corporation’s policy chief Catherine McGuinness has already said as much. Unfortunately for London HQ’d firms, the public, clients and politicians will be less forgiving of attempts to sit on the fence. To take advantage of the opportunities available in China, City firms will need to tell a clearer story about where they stand to stakeholders in Beijing, Washington and a watching world.