For many years, London has been perceived to be one of the most important financial centres in the world. However, it is now facing stiff competition from other cities in the West, as well as several emerging economies, to retain its position as a leading global financial centre. There are a number of factors putting pressure on London at the moment, including the struggling EU economy and the fallout from the Libor rate-fixing scandal. Whatever the reason behind London’s decline, any perceived long-term shift could have a significant impact on the City’s ability to attract business and investment in the future.
At Kinetic Partners, we recently conducted our Global Regulatory Outlook survey of financial services executives and nearly half (49%) of respondents cited New York as the “current pre-eminent global financial centre.” London was slightly behind with 44%. However, it is over the next few years when we believe London’s position is going to face challenges from abroad. When asked where the most influential financial centre would be located in five years’ time, only 26% of respondents thought London would hold this title.
New York lost some ground as well, with just 40% believing that New York would still be at the top of this list in 2018, but that nevertheless puts New York far ahead of London. Despite the introduction of a raft of stricter regulations in the US following the 2008 financial crisis, the financial services industry has largely adapted to these developments. To remain competitive, the UK’s success in building on its reputation for introducing effective, yet balanced regulation will have a profound impact on London’s ability to attract business in the future.
Many businesses want to be located in a leading financial centre alongside other similar businesses, as this gives them access to greater opportunities, resources and better networks. For this reason, more than 75% of those who took part in our survey said commercial opportunities were the most important factor when it came to deciding where to base their business. London will therefore need to continue to invest in the business, management and technical skills of its workforce if it is to avoid losing any more ground to its competitors.
One reason for London’s predicted fall from grace could be the perception that Europe exercises too much influence over how UK businesses are run. After all, firms in the UK are not only subject to rules made in Westminster, but increasingly to those made in Brussels, leading many firms to believe that it is easier to be located elsewhere. This dual layer of governance also makes it more expensive to be domiciled in the UK, adding yet another reason to relocate. Of course, this is a similar challenge faced across EU territories, but London’s size means any loss of business EU-wide will inevitably impact the city.
A recent example of this issue is the Alternative Investment Fund Managers Directive (AIFMD), which will take full effect this summer. AIFMD regulation is not only complex in its own right, but offers several alternatives for funds and their Manager sitting outside of the European Economic Area (EEA). To market and distribute into the EEA, a number of options for both funds and fund managers under AIFMD must be considered. One option for funds and their Managers is to continue to market to investors in specific European countries under States’ domestic private placement regulations (where these exist) but the provisions of AIFMD still apply. Of course, some may simply decide that the regulatory cost of marketing and distributing to European investors does not make commercial sense, so will target investors in other parts of the world.
Over time, private placement regulations may be phased out (either because a Member State chooses at its own volition to do so or because the second stage of AIFMD’s provisions is switched on – the so called Third Country Passport), which will make the picture clearer. In the short-term, however, the confusing regulatory environment, new requirements on the majority of funds looking to market and distribute into the EEA and the lack of economic growth across Europe may well harm London in particular as the main financial services centre in Europe.
It is not just regulation that is posing a threat to London, however. Cities in emerging markets are also beginning to attract more businesses and investment. When asked to name the leading emerging financial centre in 2018, almost half of the firms that we surveyed (48%) named Shanghai. If this prediction comes to pass, the emergence of Shanghai as a future global financial centre will pose a major challenge to the dominance of Western cities.
When asked to name the leading emerging financial centre in five years’ time, respondents also cited Hong Kong (10%) and Singapore (6%). The governments in these markets are already well aware of the benefits of attracting global investment, and have already taken measures to attract as much of this business as possible.
For all these reasons, London and other traditional financial centres will have to concentrate resources into making sure they continue to proactively attract investment, business and the right skills and expertise for the industry. Senior executives will decide where to locate their business based on the most favourable regulatory regime, cost and where their target market is. Policy makers and industry leaders in London need to consider these three elements to attract the next generation of businesses. There is no room for complacency.
Boeing cites risks in design of newest Airbus jet
By Tim Hepher
PARIS (Reuters) – Boeing Co has raised concerns over the design of arch-rival Airbus’ newest narrow-body jet, the A321XLR, saying a novel type of fuel tank could pose fire risks.
The U.S. plane giant’s intervention is not without precedent in a global system that regularly allows manufacturers to chime in whenever safety rules are being interpreted in a way that might affect the rest of the industry.
But it comes at a pivotal moment as Boeing emerges from a two-year safety crisis over its competing 737 MAX, and Airbus faces its own crucial test of the tougher mood expected from regulators worldwide following the MAX’s 20-month grounding.
In a submission to the European Union Aviation Safety Agency (EASA), Boeing said the architecture of a fuel tank intended to increase the A321XLR’s range “presents many potential hazards.”
The debate surrounds the hot-selling A321XLR’s main marketing point – the longest range of any single-aisle jet.
In most jets, fuel is carried in wings and central tanks.
To meet demand for longer routes, Airbus has already added optional extra fuel tanks inside the cargo bay of some A321s.
For the A321XLR, Airbus plans to eke out more space for fuel by moulding one tank directly into the fuselage, meaning its shape would follow the contours of the jet and carry more fuel.
The concept caught the attention of EASA which in January said it would impose special conditions to keep passengers safe.
“An integral fuselage fuel tank exposed to an external fire, if not adequately protected, may not provide enough time for the
passengers to safely evacuate the aircraft,” it said.
In comments to EASA first reported by Flightglobal, Boeing cited risks if a jet veers off a runway or its wheels fail.
“Public consultation is part-and-parcel of an aircraft development programme,” an Airbus spokesman said, adding any issues raised would be tackled together with regulators.
Such technical exchanges rarely capture attention. But a battered aerospace industry is on edge after the MAX crisis, compounded by COVID-19, shook confidence in aviation.
Commercial stakes are also high.
One industry source familiar with the project warned any extended wrangle over certification could delay the A321XLR’s service entry from “late 2023” to 2024 or beyond.
Should that happen, sources say Boeing is expected to encourage airlines to wait a few years longer for a potential all-new model that insiders say would leapfrog the A321XLR.
While insisting they never compete on safety, Airbus and Boeing have a record of goading each other in the past over issues like novel flight computers on the Airbus A320 or European claims that four engines were safer than the 777’s two.
Fuel tanks have provoked particularly sharp disagreement.
In 2001, the U.S. Federal Aviation Administration triggered changes to the design of fuel tanks worldwide, five years after a Boeing 747 exploded in mid-air.
Investigators said TWA 800 was brought down by a fuel-tank explosion in the presence of unwanted oxygen, but Airbus officials maintained their own jets were less at risk.
(Reporting by Tim Hepher in Paris; Additional reporting by Eric M. Johnson; Editing by Matthew Lewis)
UK extends furlough scheme by five months, gives more help to self-employed
LONDON (Reuters) – Britain will extend its huge job-protecting furlough programme by five months until the end of September and expand parallel support for the self-employed, finance minister Rishi Sunak is due to announce in a budget speech on Wednesday.
Workers covered by the furlough scheme – currently about one in five private-sector employees – will continue to receive 80% of their salary for hours not worked.
But employers will have to start contributing to the cost as the economy reopens from lockdown, paying 10% of the hours their staff do not work in July, rising to 20% in August and September, the ministry said.
“Our COVID support schemes have been a lifeline to millions, protecting jobs and incomes across the UK,” Sunak was due to say in his budget speech to parliament, according to excerpts sent to media by the finance ministry.
“There’s now light at the end of the tunnel with a roadmap for reopening, so it’s only right that we continue to help business and individuals through the challenging months ahead – and beyond.”
The Coronavirus Job Retention Scheme (CJRS) had been due to expire at the end of April, raising fears of a sharp jump in unemployment at a time when the economy is still likely to be struggling under the weight of coronavirus restrictions.
The Confederation of British Industry welcomed the move. “Extending the scheme will keep millions more in work and give businesses the chance to catch their breath as we carefully exit lockdown,” CBI chief economist Rain Newton-Smith said.
The CJRS will cost 70 billion pounds ($98 billion) between its launch in March last year during the onset of the pandemic and the end of April, according to estimates made last month by the National Institute of Economic and Social Research.
Sunak is also due to announce on Wednesday that a further 600,000 self-employed workers will become eligible for government support. Until now the government had only allowed applications from workers who were self-employed in the 2018-19 tax year, but eligibility for the Self-Employment Income Support Scheme (SEISS) will be expanded to those who first reported being self-employed in 2019-20.
A fourth SEISS grant for the self-employed will be available from next month worth 80% of three months’ average trading profits up to 7,500 pounds in total, and details of a fifth grant would be provided on Wednesday, the ministry said.
(Writing by William Schomberg; Editing by Catherine Evans)
German exports to UK fell almost a third in January as Brexit hit
By Paul Carrel and Rene Wagner
BERLIN (Reuters) – German exports to the United Kingdom fell by 30% on the year in January as the impact of Brexit turned Europe’s largest economy away from the UK, exacerbating the hit to business from the coronavirus pandemic, official figures showed on Tuesday.
The UK left the European Union’s single market at the end of last year, raising barriers to trade. That final split followed more than four years of wrangling over its terms of exit from the EU, during which German businesses had already begun to reduce their interactions with Britain.
“Since 2016 – the year of the Brexit referendum – German exports to the UK have steadily declined,” Germany’s Federal Statistics Office said in a comment on the preliminary figures. It did not give a sector-by-sector breakdown.
The Office attributed the January slump to “the effects of Brexit after the year 2020, which was marked by the Corona pandemic.”
The impact of COVID-19 meant that the UK economy was smaller in January than a year earlier. The International Monetary Fund estimates that the UK and euro zone economies will not return to their pre-pandemic levels until next year.
Ahead of formal departure from the EU on Dec. 31, British businesses rushed to bring goods into the country – stockpiling that often results in a dip in activity later.
The January slump in bilateral trade compared with a more modest decline in December 2020, when German exports to the UK fell by 3.3% on the year, to 5.0 billion euros, and imports from the UK dropped 11.4% to 2.8 billion euros.
Gabriel Felbermayr, president of the IfW economic institute in Kiel, said the January export slump was probably an “outlier” as the pandemic slowed trade, and as exporters adjusted to new customs formalities.
“In the long term, we assume that German exports to the UK will be 10% below the level expected without Brexit,” Felbermayr told Reuters.
The Brexit deal is “far removed from the rules of the single market” in the EU and will dampen trade, he added, with many firms on the continent having already reorganised supply chains and scaled back business with Britain.
New customs rules which took effect in January have increased the cost and complexity of trade between Britain and the EU, especially for smaller firms, and caused delays to freight at the borders.
In 2020 as a whole, German exports to the UK fell by 15.5% compared to 2019, recording the biggest year-on-year decline since the financial and economic crisis in 2009, when they fell by 17.0%, the Office said.
In 2015 German exports to the UK amounted to 89.0 billion euros. In 2020, German they totalled 66.9 billion euros.
Imports to Germany from the UK totalled 34.7 billion euros in 2020, down 9.6 % compared to 2019.
(Reporting by Paul Carrel; Editing by Madeline Chambers and Catherine Evans)
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