How did London come to be the world’s greatest financial hub?

The City of London. Image: Getty.

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Ask anyone about powerful stock markets and financial hubs, and the conversation will likely turn to Wall Street. But in actual fact, London has been far more powerful than Wall Street – or any other financial hotspot – for many years. Up until the recent Brexit referendum, which saw Britain vote to leave the European Union, London was king when it came to business, stock trading and financial operations in general.

How did London surpass Wall Street as the world’s finance capital? Partly it was due to favourable legislation, and partly to good positioning. London’s time zone means that its business hours overlap those of the Middle East, America and Asia – something which definitely put the city in good stead when it came to trading.

That said, the key event in London’s rise as the world’s premier financial hub was probably legislation passed the “Big Bang” reforms passed by Margaret Thatcher’s government in 1986. These were intended to remove the laws that were protecting Britain’s slow-growing firms and contributing to sluggish financial markets.

The results were immediate. From a network of small companies with very little potential for growth, London-based businesses grew overnight to become conglomerates of huge proportions, along with more advanced financial practices like virtual banking.

Even better news for UK businesses lay ahead. The Big Bang had created relaxed regulatory measures that allowed corporations to earn unlimited amounts of money between the 1980s and the early 2000s. Helping London further, in 2002, the US Congress tightened corporate regulations through the Sarbanes-Oxley reforms, which increased paperwork and put a cap on the local earning opportunities.

So London’s stock markets flourished: American firms were forced to adhere to the Sarbanes-Oxley reforms, but other international markets simply sidestepped them by taking their business to London instead. It was through these actions that London finally bypassed Wall Street, becoming the world’s number one hotspot for trading and business ventures. Within a few years London had captured more than 75 per cent of the US exchange’s public stock, and Congress was trying to win them back through softer regulation.


The Brexit shockwave

London enjoyed its status as the world’s hub of finance for a few more years, but it was not to last. When the public voted for Brexit, London’s Stock Exchange plummeted, as companies and investors pulled out of Britain and moved their business to other European districts.

Brexit has had a huge impact on businesses in the UK, and a number of European cities that have the potential to replace London as the finance capital of Europe – and perhaps even the world – have stepped forward. Frankfurt, Paris, Madrid and Amsterdam are being touted as candidates, while many experts also theorise that Dublin’s technologically advanced approach may put them in the lead.

However, the glory days might not be over just yet for London. Some commentators have suggested that the British capital will continue to dominate European financial markets for a number of key reasons.

Firstly, the strength of the local courts means that the rule of law will continue to be upheld, including those that protect creditor and shareholders’ rights. Secondly, the UK’s university education offerings in economics and finance are far superior to those anywhere else in Europe. And lastly, the UK’s regulations controlling tax and employment is designed specifically to boost the financial industry’s overall health and profit margins.

There is no denying that trade has become more challenging in London since Brexit. Tax loopholes have been closed, and companies are expected to shell out more of their profits in the process. However, if London manages to keep its dominance over European financial markets, it stands to reason that the city may one day reclaim its title of the world’s greatest finance hub.

 
 
 
 

The Fire Brigades Union’s statement on Theresa May’s resignation is completely damning

Grenfell Tower. Image: Getty.

Just after 10 this morning, Theresa May announced that she would resign as Britain’s prime minister on 7 June. A mere half an hour later, a statement from Royal Institute of British Architects president Ben Derbyshire arrived in my inbox with a ping:

“The news that Theresa May will step down as Prime Minister leaves the country in limbo while the clock ticks down to the latest deadline of 31 October. While much is uncertain, one thing remains clear – a no deal is no option for architecture or the wider construction sector. Whoever becomes the next Prime Minister must focus on taking the country forward with policies beyond Brexit that tackle the major challenges facing the country such as the housing crisis and climate change emergency.”

I was a bit baffled by this – why would the architecture profession try to get its thoughts into a political story? But then Merlin Fulcher of Architects Journal put me right:

Well you know construction is a larger contributor to GDP than financial services, and most of the work UK architects do is for export, and at least half of the largest practice (Foster + Partners) are EU, so there's a lot at stake

— Merlin Fulcher (@merlinfulcher) May 24, 2019

So, the thoughts of the RIBA president are an entirely legitimate thing to send to any construction sector-adjacent journalists who might be writing about today’s big news, and frankly I felt a little silly.

Someone else who should be feeling more than a little silly, though, is Theresa May herself. When listing her government’s achievements, such as they were, she included, setting up “the independent public inquiry into the tragedy at Grenfell Tower” – a fire in a West London public housing block in June 2017 – “to search for the truth, so nothing like it can ever happen again, and so the people who lost their lives that night are never forgotten”.

Matt Wrack, general secretary of the Fire Brigades Union, is having precisely none of this. Here’s his statement:

“Many of the underlying issues at Grenfell were due to unsafe conditions that had been allowed to fester under Tory governments and a council for which Theresa May bears ultimate responsibility. The inquiry she launched has kicked scrutiny of corporate and government interests into the long-grass, denying families and survivors justice, while allowing business as usual to continue for the wealthy. For the outgoing Prime Minister to suggest that her awful response to Grenfell is a proud part of her legacy is, frankly, disgraceful.”

A total of 72 people died in the Grenfell fire. At time of writing, nobody has been prosecuted.

Jonn Elledge is editor of CityMetric and the assistant editor of the New Statesman. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.

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