The latest Global Financial Centres Index from Z/Yen shows stability at the top of the Index, which lists the leading 86 Financial Centres. The top five remain: London, New York, Singapore, Hong Kong and Tokyo. The only change in the order at the top since the previous Index was published in September 2015 is that Singapore has moved above Hong Kong.
However, a number of respondents to the questionnaire on which the Index is based did comment that the uncertainty surrounding a possible UK exit from the European Union is having a negative impact on London’s competitiveness. The result of the referendum on membership which is taking place on 23 June will be followed carefully in the financial markets.
Mark Yeandle, Associate Director at the Z/Yen Group and the author of the GFCI, says that, nevertheless, the closeness in the positions of London and New York suggest not only that they are effectively on a par, but also that these two leading centres are complimentary rather than purely competitive. Given that the Index is on a scale of 1,000 points, any gap of fewer than 20 points is considered to be of little significance. London comes out in this survey just eight points ahead of New York.
The areas of competitiveness on which the ratings are based – and the order of importance granted to them by respondents – are firstly, Business Environment; then Human Capital; Taxation; Reputation; Infrastructure; and Financial Sector Development.
For the Business Environment, clear and fair regulation is regarded as crucial, as is the threat and handling of corruption. As for Human Capital, it is recognised that the leading centres are becoming more competitive in attracting skilled people, which could lead to a “brain drain” from certain developing economies, to the detriment of some of the smaller financial centres. Success breeds success: successful people are attracted to successful cities.
As for Taxation, it is vital that tax rules are transparent and reasonable, and that rules are harmonised internationally. Security, safety and human rights issues now play a part as far as Reputation is concerned; and individual centres need to advertise themselves better because of the competitiveness of the market.
The Infrastructure issue sees certain centres held back because of the lack of access to direct flights. This is also a factor for Financial Sector Development: geography plays an important role, and London’s easily-accessible position is vital.
But below the stability of the top five centres, there is concern over the wider outlook. In Europe, for example, of the 29 centres in the region, 12 rose in the ratings and 17 centres fell. As well as London, Zurich, Geneva, Luxembourg and Frankfurt look sound, but the immediate future of many of the smaller European centres looks less certain.
This situation is reflected in the Asia/Pacific Region, too. Seven of the top ten Asia/Pacific centres fell in their ratings, with Seoul and Sydney particularly badly hit. Seoul fell from sixth to twelfth in the rankings, and Sydney from fifteenth to seventeenth.
North America saw a mixed picture, too. Although five of the top ten centres are in North America, and the ratings for New York, Washington DC and Los Angeles all rose, the top three Canadian centres (Toronto, Montreal and Vancouver) all dropped back, with Toronto being pushed back to tenth from eighth; San Francisco and Boston overtook the leading Canadian centre.
The longer term picture shows that the Asia/Pacific centres have closed the gap on Europe and North America over the nine years that the Index has been published, and this is a tendency which looks likely to continue; although this is not expected to represent a threat to London and New York.