London's future: The City changes course

Depending on your viewpoint, London is either booming, or completely falling apart. After the Diamond Jubilee and the Olympics, London’s reputation as a party town has never been higher. In stark contrast, its reputation as a financial centre has never been lower.

This Janus-faced dichotomy is accepted by all who work in the UK financial services sector. But to outsiders it is a cause of concern. And now, Asian companies and governments are hesitating before engaging with the financial system in London. The scandals engulfing many of the world's biggest banks have a worrying tendency to start in London. The rise of banker bashing and political pressure on finance seems to have its zenith in the city. These negatives are compounded in Asian minds by London being very much a part of Europe, despite the strenuous denials of most British inhabitants.

Most importantly, the rise of huge pools of capital in their own markets mean that the one thing Asian issuers used to need from the UK — capital — is now abundantly available on their own doorsteps. As large institutional investors now invest in Asia from their offices in Hong Kong and Singapore, there is no longer a need to get on a plane to sell a deal into the UK market.

And yet, strategically London is fighting back. The mantra is now co-operation, not competition with Asia's financial centres and the market has moved on from the battle to win the big listings. Where London used to import business, it is now exporting its way of doing business. What made London work as a financial centre in the past — language, time zone, people and capital — are no longer as relevant as they once were. What were historical advantages were largely the physical advantages that came from being an entrepot on the edge of the Atlantic Ocean. Now what London is aspiring to achieve in the future is a role akin to a global financial platform: accessible from anywhere, with a distinct set of protocols and systems.

In the financial space, this is more than about raising finance. It is about creating a legal system that can be used anywhere. It is about using price discovery techniques that will deter- mine values around the world. It is about establishing networks of people — mobile, educated and ambitious — who have the imprimatur of the city embedded in their cortex.

This reflects a shift from historical to modern competitive advantages, argued Chris Cumming, CEO of TheCityUK — a body representing the interests of financial services companies in the UK. And that is a shift that is not without difficulties. “For me it is about attitude,” he said. “You need to be in a place that gets things done.” Many of the modern advantages that London has are to do with openness: it is unlikely a yoghurt manufacturer would be declared a strategic industry. However, the attitude of openness and deep commitment to free trade is under threat. “Our leading export is pessimism, but we do need to do a much better job of being business friendly, especially around tax and regulations,” says Cumming, whose organisation is now working in collaboration with many other aspiring financial centres around the world as they seek to establish themselves.

“TheCityUK has a strategy to help other countries to develop their own financial centres,” he says. “This means that the world remains close to the language, law and regulatory system that we use here.”