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.

 
 
 
 

CityMetric is now City Monitor! Come see us at our new home

City Monitor is now live in beta at citymonitor.ai.

CityMetric is now City Monitor, a name that reflects both a ramping up of our ambitions as well as our membership in a network of like-minded publications from New Statesman Media Group. Our new site is now live in beta, so please visit us there going forward. Here’s what CityMetric readers should know about this exciting transition.  

Regular CityMetric readers may have already noticed a few changes around here since the spring. CityMetric’s beloved founding editor, Jonn Elledge, has moved on to some new adventures, and a new team has formed to take the site into the future. It’s led by yours truly – I’m Sommer Mathis, the editor-in-chief of City Monitor. Hello!

My background includes having served as the founding editor of CityLab, editor-in-chief of Atlas Obscura, and editor-in-chief of DCist, a local news publication in the District of Columbia. I’ve been reporting on and writing about cities in one way or another for the past 15 years. To me, there is no more important story in the world right now than how cities are changing and adapting to an increasingly challenging global landscape. The majority of the world’s population lives in cities, and if we’re ever going to be able to tackle the most pressing issues currently facing our planet – the climate emergency, rising inequality, the Covid-19 pandemic ­­­– cities are going to have to lead the way.

That’s why City Monitor is now a global publication dedicated to the future of cities everywhere – not just in the UK (nor for that matter just in the US, where I live). Our mission is to help our readers, many of whom are in leadership positions around the globe, navigate how cities are changing and discover what’s next in the world of urban policy. We’ll do that through original reporting, expert opinion and most crucially, a data-driven approach that emphasises evidence and rigorous analysis. We want to arm local decision-makers and those they work in concert with – whether that’s elected officials, bureaucratic leaders, policy advocates, neighbourhood activists, academics and researchers, entrepreneurs, or plain-old engaged citizens – with real insights and potential answers to tough problems. Subjects we cover include transportation, infrastructure, housing, urban design, public safety, the environment, the economy, and much more.

The City Monitor team is made up of some of the most experienced urban policy journalists in the world. Our managing editor is Adam Sneed, also a CityLab alum where he served as a senior associate editor. Before that he was a technology reporter at Politico. Allison Arieff is City Monitor’s senior editor. She was previously editorial director of the urban planning and policy think tank SPUR, as well as a contributing columnist for The New York Times. Staff writer Jake Blumgart most recently covered development, housing and politics for WHYY, the local public radio station in Philadelphia. And our data reporter is Alexandra Kanik, whose previous roles include data reporting for Louisville Public Media in Kentucky and PublicSource in Pittsburgh, Pennsylvania.

Our team will continue to grow in the coming weeks, and we’ll also be collaborating closely with our editorial colleagues across New Statesman Media Group. In fact, we’re launching a whole network of new publications, covering topics such as the clean energy transition, foreign direct investment, technology, banks and more. Many of these sectors will frequently overlap with our cities coverage, and a key part of our plan is make the most of the expertise that all of these newsrooms combined will bring to bear on our journalism.

Please visit citymonitor.ai going forward, where you can also sign up for our free email newsletter.


As for CityMetric, some of its archives have already been moved over to the new website, and the rest will follow not long after. If you’re looking for a favourite piece from CityMetric’s past, for a time you’ll still be able to find it here, but before long the whole archive will move over to City Monitor.

On behalf of the City Monitor team, I’m thrilled to invite you to come along for the ride at our new digs. You can follow City Monitor on LinkedIn and on Twitter. If you’re interested in learning more about the potential for a commercial partnership with City Monitor, please get in touch with our director of partnerships, Joe Maughan.

I want to thank and congratulate Jonn Elledge on a brilliant run. Everything we do from here on out will be building on the legacy of his work, and the community that he built here at CityMetric. Cheers, Jonn!

To our readers, on behalf of the City Monitor team, thank you from all of us for being such loyal CityMetric fans. We couldn’t have done any of this without you.

Sommer Mathis is editor-in-chief of City Monitor.