Htet Tayza analyses the chief executive of UBS’ recent claim that London is set to become a less attractive market for financial services companies.
Premier financial centre
Last year, London was named by the Global Financial Centres Index as the best financial city in the world. The Index is a list compiled by risk/reward managers Z/Yen Group, which ranks majors cities on the basis of their financial markets.
Z/Yen Group gathered data from a range of international sources to determine the “instrumental business factors” which allow a city to develop a strong financial services sector. Out of a possible 1,000, London scored 769. This allowed the UK capital to displace New York, which topped the Index in 2014, leading the American city by 12 points. Z/Yen Group revealed that London ranked better than New York in several vital categories such as ‘business environment,’ ‘human capital’ and ‘reputation.’
Senior Managers Regime
But speaking recently to an audience in Canary Wharf, a major business district in London, UBS chief executive Sergio Ermotti suggested the UK capital is increasingly becoming a less desirable place to do business. He attributed this to the Senior Manager’s Regime (SMR), a piece of government legislation which is due to go into effect in the UK in March 2016.
According to HITC Business, an online news site, SMR is designed to hold senior managers at banks accountable for any regulatory violations that occur within their areas of responsibility. The legislation will require them to answer to the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA), which regulate the UK’s financial services industry.
Speaking about how SMR would affect the UK’s financial service sector, Ermotti said: “If you add the regulatory regime of the UK about the single person responsibilities, and in the broader terms that is quite demanding, I can see why people would come back and say I would rather do my global job out of New York or Hong Kong or Singapore, why bother being in London?”
The UBS chief executive also spoke about the UK’s upcoming referendum on European Union (EU) membership. Ermotti said that if the UK votes to leave the EU it wouldn’t be a “huge disaster” for the country’s economy in the short-term. But he revealed that “it would have a clear repercussions on what we [UBS] do in this country over time.” It could also be disastrous for European financial services; there’s no other city on the continent that could replace London as a global financial hub.
Htet Tayza’s analysis
The City of London, which serves as the UK capital’s financial district, is home to more than 250 foreign banks. The district’s official website argues that foreign banks are important for both London’s and the UK’s economies, because they provide vital tax revenue. It suggests that the factors that have turned London into an attractive destination for international financial institutions, such as “a globally competitive tax and regulatory regime,” must be maintained to safeguard economic growth.
Ermotti makes the same argument. He suggested that the SMR would impose new regulatory requirements on foreign banks, which would cause them to desert London in favour of other cities which boast more advantageous regulatory environments. If the UK also decided to leave the EU, abandoning its role as a centre for the European finance industry, London really could become a less attractive destination for foreign financial companies, potentially damaging its economic fortunes,