City holds lead despite being outside eurozone

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The Independent Online

The City of London has "fully maintained" its pre-eminent role as a global financial centre despite being outside the European single currency, the Bank of England said today.

The City of London has "fully maintained" its pre-eminent role as a global financial centre despite being outside the European single currency, the Bank of England said today.

In a report looking at the euro and its implications for the UK, the Bank said the number of foreign institutions in London had grown over the last six months. But it said the big players wanted to see further reform of regulatory barriers across Europe that were threatening to distort competition, and added that the Bank echoed their concern.

The report said: "Since the launch of the euro, all the available evidence continues to indicate that London has fully maintained its market share. "But it will only continue to do so if the environment it provides for financial business remains attractive and consistent with international best practice."

It found London had benefited from a tendency among global financial firms to centralise operations. London was the most popular city for treasury and risk management, foreign exchange, and international bond and equity trading. It was also the leader for corporate eurobond and equity issues and for international fund management. The areas where London did not have pole position included bond and equity sales and back office processing.

The fact that London has not been disadvantaged by being outside the euro will be seized on by groups campaigning against UK membership of the currency. The Bank said most firms believed London's dominant position depended on remaining competitive, rather than whether it was in or out of the euro.

Foreign banks said they were attracted by a huge pool of talented workers and support services in the City, an efficient financial infrastructure, a low tax regime and a relatively light set of regulations for labour and competition. But there was concern among major banks that further reforms of Europe's capital markets, including London, were needed.

"The launch of the euro has served to highlight the remaining barriers as well as discrepancies between national regulatory regimes, which in some cases may result in competitive distortions," the report said.

These changes include: A single set of rules of company flotations that would allow the shares to be issued across the European Union; a common EU accounting standard; a clear distinction between the rules for professional and retail investors and a directive to clarify the legal backing for cross-border transactions.

"We understand these points and we have a great deal of sympathy for them," said John Townend, the Bank's director for Europe. "But this is not an issue of London versus Frankfurt or Paris."

Investment banks are also worried about a lack of consistent enforcement of legislation across all member states and the length of time it takes to implement EU directives.

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