In times of a growing euro zone debt crisis, and tightening financial regulation, London has to keep up its competitiveness, Chris Cummings, CEO of TheCityUK, told CNBC.
“We are the global financial trading centre of the world, but these are competitive times and current trading conditions are tough so we can’t rest on our laurels,” Cummings, who heads the body which promotes the U.K. financial services industry said.
Cummings comments come as global stock trading volumes have dropped to the lowest in decades and worries have grown over further financial sector job losses. A weaker financial sector could prove especially costly to the U.K. given that the sector accounted for 8.9 percent of the nation’s GDP in 2011, according to CityUK.
London’s image as a global financial capital has also come under fire in the past year as scandals have hit several major U.K. banks, prompting calls for even tighter regulation.
JP Morgan was hit by large lossesafter a London-based trader made large bets on derivatives tied to corporate debt. Standard Chartered, a big British multinational bank, was accused by the New York State Department of Financial Services of concealing $250 billion in transactions made by the Iranian government in defiance of sanctions.
The Libor rate-rigging scandal, the artificial lowering of the London interbank offered rate, which is the benchmark for millions of financial transactions, also tainted several major British banks.
But there are positive signs flowing to London as CME Group, the world’s largest futures exchange operator, announced earlier on Mondaythat it is planning to open a derivatives exchange in London that will strengthen the city’s role as a financial centre. Fed-up Parisian bankers and French financial groups are also looking at London as a possible shelter after France’s plans to tax its top earners at a new 75 percent rate.
According to Cummings, one area of future growth for London could be for it to become the major offshore renminbi trading center for the West.
London is currently the largest foreign exchange market in the world, accounting for 37 percent of trading, and is therefore ideally placed to join Hong Kong as a major international offshore centre for trading the Chinese currency, CityUK believes.
Other benefits London has over competing financial hubs are its natural time zone advantage, which allows for daily trading to naturally follow on Asian markets, and English being the universal business language.
Cummings said the U.K. needs a more competitive tax rate, and had to be more proactive in influencing European regulation over the financial sector. He said the U.K. should remind leaders of other financial capitals of the fact that the financial sector employs 6.5 million people in Europe.