There has been much talk of London losing its financial crown to Paris, but the fact is that is simply not true.
The latest Global Financial Centers Index recognizes that London leads in Europe in terms of business environment, human capital, infrastructure, financial sector development and reputation.
But change is needed if we are to maintain Britain’s leading position in Europe.
The financial services sector has changed a lot since I first started working in the city 25 years ago. We have transformed the way we work, use data and how companies access capital. But over that time, regulation has largely stayed the same.
For some time there has been a consensus among government, regulators and business that major reforms are needed to maintain competitiveness, unlock investment and boost growth – across the UK, not just in the City of London.
This is particularly important given the pace of innovation in finance, with companies embracing new technologies such as AI, blockchain and quantum computing.
The Edinburgh reforms recently announced by the government are therefore to be welcomed.
Questions have been raised about the effectiveness of the proposals, with some commentators implying that they will have minimal impact, but I think the potential of the Edinburgh reforms is being radically underestimated.
The sheer breadth of the announcement is significant in and of itself, as it encompasses some 30 reforms that span the entire financial services sector and affect everyone from individual consumers to large financial institutions like the London Stock Exchange.
I suspect that some have ignored the Edinburgh reforms because they cannot be wrapped up in a simple policy change. But financial services regulation is bound to be complex, so there can be no silver bullet.
A wide range of carefully considered long-term reforms is exactly what is needed to ensure the UK remains one of the most open and attractive markets in the world.
The reforms will boost investment in UK growth companies. Of particular note are the new guidance on asset pooling of local government pension schemes and consultation to ensure these pension schemes reflect a diversified range of asset classes, including venture and growth capital.
As Lord Mayor Nick Lyons said in his speech at the Lord Mayor’s Banquet, only 7 per cent of pension funds in the UK are currently allocated to real economy asset classes, compared to 19 per cent for other pension funds around the world.
Industry research earlier this year found that the percentage of UK shares held directly by UK pension funds has fallen by more than 90 per cent, from almost 32.4 per cent in 1990 to less than 2.4 per cent a year 2018
If the Edinburgh reforms helped push that percentage even higher to 10 per cent, it would free up £40bn of new capital that could be channeled into business, infrastructure and green investment.
For comparison, the UK’s entire private fintech sector raised almost £10bn in 2021 in a very good fundraising year. And from there, there’s clearly more upside potential.
However, keeping the UK financial services sector competitive cannot be solved by top-down regulation alone.
If we are to build on the momentum created by the Edinburgh reforms, the financial services industry must engage with the agenda. It is for this reason that industry leaders have come together to form the UK Capital Markets Industry Taskforce, of which I am Chair.
The taskforce’s aim is to maximize the impact of reform and ensure the UK has the best possible environment for great companies to start here, grow here, grow here and stay here.
The taskforce brings together for the first time private companies, public companies, private investors, public investors and the intermediaries in between.
We want to do more than just ask the government to regulate change. We want to think about what we can do differently to change the economy for the better.
In the UK we rarely discuss capital markets in terms of their ultimate purpose: to channel capital into the real economy.
At the London Stock Exchange, we connect companies in need of investment with capital at all stages of the business lifecycle, which in turn drives innovation, job creation and economic growth. This dynamism means the investment industry has the power to transform the UK economy.
One of the taskforce’s aims is to ensure that UK investors – anyone with a pension, insurance policy or other invested asset – have access to assets that provide the returns they need and support the economy.
I hope the changes outlined in the Edinburgh reforms will reverse this decline and help savers, pensioners and policyholders find assets to invest in the UK for life events and retirement.
There is a great consensus between all political parties and industry players. The Edinburgh reforms represent a major package which, taken together and if implemented effectively, has the potential to fundamentally transform UK capital markets and thereby support the UK economy for the better.
Julia Hoggett is Chief Executive of the London Stock Exchange
