London has slipped to second place behind New York as the pre-eminent global financial centre, according to a recent global survey of financial services executives.
This year, global advisory firm Duff & Phelps’s annual survey the Global Regulatory Outlook 2019 covered anti-money laundering, whistle-blowing, technology, and budgeting. It also gathered views on which global hub is the pre-eminent financial centre — both today and five years into the future.
The survey’s respondents were mostly from the asset and wealth management, private equity and hedge fund, or banking sectors.
Compared with the 2018 survey results, New York increased its rating as the main financial centre from 42% to 52%. London dropped to 36% from 53%, and Hong Kong rose to 4% from 1% in 2018.
When asked which city will be the world’s main financial centre in five years’ time, New York was still in the top place on 44% (down from 52% in 2018), London’s rating dropped to 21% from 29% last year, and Hong Kong was up from 3% last year to 12%.
Monique Melis, global service line leader for compliance and regulatory consulting at Duff & Phelps, said that China is playing “an interesting role” in the rise of Hong Kong. She explained: “Everybody wants to be close to China. But it’s not just Hong Kong and Singapore in the APAC region that [are] growing — it’s actually Australia and Malaysia as well.
“[Hong Kong and Singapore] weren’t hit by the banking crisis at all, and they are saying to the whole world that they are open for business.”
Claire Simm, managing director, compliance and regulatory consulting at Duff & Phelps, suggested “regulatory fatigue” could be a factor in the UK’s and London’s slipping back, with companies hit by the cost and difficulty of “widescale regulatory change”.
Brexit’s escalation to a “full-blown crisis” and the effects of globalisation were also impacting the shift away from London, the report said.
However, Simm said that as a result of its developed infrastructure, “I don’t think we are expecting to see London as a financial hub disappear. London is still a major financial centre, and we expect to see that continue.”
The report also revealed the other cities regarded as the leading financial hub of the future: Shanghai (9%), Dublin (4%), Frankfurt (4%), and Luxembourg City (3%).
New York is also the leading global financial centre according to the March 2019 Global Financial Centres Index (GFCI), published jointly by London-based commercial think-tank Z/Yen and the China Development Institute in Shenzhen in China.
New York (794) is seven points ahead of London (787), having widened the gap by five points since the September 2018 survey. In March 2018, the GFCI rated London above New York in the index.
For March 2019, Hong Kong (783), Singapore (772), and Shanghai (770) took the third, fourth, and fifth places in the index.
This twice-yearly report uses quantitative measures provided by third parties including the World Bank, The Economist Intelligence Unit, the Organisation for Economic Co-operation and Development, and the UN, combined with more than 2,300 online survey responses.
The Global Regulatory Outlook 2019 survey also asked finance executives about anti-money laundering.
It found that the change that would make the biggest impact — cited by 57% — in improving AML efforts globally was “more sharing of information between regulators and industry”.
A total of 52% of those responding believed that “better co-ordination between jurisdictions on regulation” would also make a strong impact, while 43% believed “better co-ordination between authorities within countries” would also make inroads into the problem.
The report concluded that survey respondents “place less priority on the execution of the elements on the front lines …, such as better funding, reporting, or enforcement”. Instead, it said, they see the issue “as one of improving co-ordination and information-sharing among the wide-ranging constituencies of the global financial system”.
The Duff & Phelps survey also looked at how technology is increasingly being integrated into supervision and compliance.
Simm said: “People are needing good tools and solutions to be able to do … effective AML processes in particular around the KYC [know your client] and due diligence on underlying customers and on transactions.”
Financial services firms, she added, were sometimes rushing in and being very enthusiastic about using technology without considering how it meets their needs.
She advised: “Really do your homework first. … Try not to find a solution that can be made to fit a budget [but] rather work out exactly what you want and be realistic in terms of what that will cost.”
─ Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.