Despite the battering that London’s financial services sector has sustained during the past year, figures released in March by the Global Financial Centres Index, a bi-annual ranking produced by the Z/Yen Group think tank, ranked London as the leading global financial centre.
But there is no room for complacency as the banking sector continues to struggle and business leaders, including Sir John Rose, chief executive of Rolls-Royce, Stephen Green, chairman of HSBC, and UK business secretary Lord Mandelson, have all spoken about a need for diversification to avoid an overdependence on financial services for the city’s economic prosperity. They are in agreement that London’s financial services sector will look very different when it emerges from the current recession.
This is a sentiment echoed by Ian Luder, the 681st Lord Mayor of the City of London. Mr Luder took on the elected role of Lord Mayor in November 2008, during a period of turbulence which he believes will change the shape of London’s financial services sector. “And that’s OK because it has changed before, and London has continually developed and reinvented itself,” he says.
Times of change
Some 47 years ago, the City of London Corporation – which governs the city’s financial district – demolished the city’s coal exchange building. “Dealing in coal and wool is no longer a significant part of the London financial services sector, but had you said that to people in the 1950s they would have looked askance,” says Mr Luder.
Looking forward, Mr Luder expects areas such as trading carbon emission offsets to lead London’s growth. “A very significant part of the world’s carbon trading goes on in the capital and that is an expertise we have developed,” he says. The same goes for sharia-compliant products for which London has become a centre of expertise. “We have a tax regime which now recognises sharia products, so they don’t get unfavourably taxed.” His point is that London’s strength is the breadth of the offering.
As regulation changes and, most likely, tightens, Mr Luder predicts more demand for classic professional services such as accounting and risk management. He is also concerned about the damage that a regulatory backlash would do to an already weakened sector, although he says that the “Pavlovian reaction”, which so many people feared, has not materialised as yet.
Regulation sets a framework but it provides no protection from bad decisions and must not be seen as a protective panacea, says Mr Luder, urging businesses to deploy common sense when considering new client opportunities as well as ticking the regulatory boxes. “Ask yourself why they are coming to you, who recommended them and what references to take up,” he says. One outcome of the current banking sector collapse will be a greater focus on the role of the non-executive, who will have to fully understand the business in order to challenge and question management and understand the overall risk management, adds Mr Luder.
“We are not going to stop competition from the rest of the world, but we need to ensure that London takes a share of that growth,” he says. Mr Luder’s role as Lord Mayor of the City of London includes a gruelling travel schedule to promote the capital’s financial services sector overseas; the annual itinerary includes Argentina, Azerbaijan, Brazil, China, the Gulf, India, Kazakhstan, Malaysia, Russia, South Korea, Turkey, Ukraine and Vietnam. For Mr Luder it is important to avoid talking the global economy into a worse recession than it is already in, but rather to learn from it. “It is simply about learning how to position the financial sector in the UK for the future,” he says.
2008City of London
2007City of London