New York has over taken London as the world’s leading financial centre as the City’s reputation has been hurt by banking and market scandals, uncertainty over EU membership and the referendum on Scottish independence.
The influential Global Financial Centres Index, published every six months, said although New York’s lead over London is very small, it is the first time since the index was published in 2007 that the Big Apple has come ahead of the City.
Worse, the UK’s second financial centre – Edinburgh – has seen an alarming drop in its ranking from No 15 in 2007, just behind Boston, to No 64 in 2014, just behind Mauritius. The report said Edinburgh had failed to keep pace with the rapid rise of financial centres in the Middle East and Asia.
“For London this loss may be significant,” said Michael Mainelli, the executive chairman of Z/Yen Group, which compiles the index.
“London needs a strong reputation as a place all can come to freely to raise capital at a low cost. Critically, London needs a reputation that everyone who comes will be treated fairly and can compete fairly.
“Without the large domestic economies behind New York and Hong Kong, London needs to act more like a Singaporean city state with a global economy, or have the backing of a European Union ‘domestic’ economy.”
The report pointed not only to uncertainty over EU membership and Scottish independence, but to “regulatory creep” and “conservatism”. It said the City had also been affected by scandals such as payment protection insurance and interest-rate swaps mis-selling and the “London Whale” rogue trader who cost JP Morgan $6bn.
Other reputational problems cited include perceived “insider” markets in Libor and foreign exchange, uncertainty over taxation, and the UK perceived reluctance to welcome foreign workers.
“Despite some regulatory restructuring, which only appears to have delayed reform, London appears ill-served in domestic regulation,” the study said.
Hong Kong, Singapore, Zurich and Tokyo ranked as the next most important financial centres.