The UK’s rising cost of regulation and compliance,
squeezed profits and a stagnant economic outlook is making the
business case for wealth managers being based in London appear less
and less attractive. Paul Golden spoke to commentators about
London’s future ahead of PBI’s upcoming London round
table.
Go deeper with GlobalData
With the fast growing economies of
Asia attracting growing attention, London will have to continue to
work hard to maintain a leading role in the global private banking
industry if PBI’s
online poll is a sign of things to come.
The poll, which asks respondents to
rank the top wealth management centre in five years time,
places Singapore above London.
It backs up the findings from
PwC’s biennial private banking survey that
placed Singapore and Hong Kong above London in a ranking of
top five global wealth management centres.
A brain drain also threatens as UK
bankers follow the money train to Asia in search of a more
profitable and sustainable future.
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By GlobalData
London on top, for
now
For the moment, London remains on
top. It retained its top ranking in the latest Global Financial
Centres Index (GFCI), published in March, for wealth
management/private banking. However, tax and regulation were
highlighted as a major concern to financial institutions based in
London or indeed those contemplating being there.
Michael Mainelli, director of Z/Yen
Group – which publishes the biennial GFCI – thinks the issue is not
so much that private banks are moving out of London, but that they
no longer see it as somewhere they have to be.
“I know of private banks that are
not expanding their presence in London and others who are
consolidating their wealth management operations in other
locations,” he says. “In a growing market, standing still is the
same as losing market share.”
Traditional centres fading
away?
A substantial number of bankers
have relocated from the UK to Switzerland in particular, Mainelli
adds.
“Banking centres don’t die so much
as fade away, which is what has been happening to London since 2007
– and also in New York. There are a greater variety of private
banking centres than there are for other areas of financial
services, so the options for relocation are increased,” says
Mainelli.
Asian cities including Singapore
and Hong Kong made it into the top six places when respondents to
the latest index were asked to indicate where their organisations
were most likely to open new offices.
Lifestyle factors increase
London’s pull
At an individual level, lifestyle
factors such as London’s cultural attractions and access to good
schools are of little interest to bankers when they realise that
they would pay a lot less tax in Hong Kong or Singapore, claims
Mainelli.
“Personal effective tax rates are
the single biggest issue for individual bankers,” he adds.
Michel Dérobert, secretary general
of the Swiss Private Bankers Association, says there has been
limited transfer of activity from London to Switzerland in the area
of hedge funds and some transfer in a totally different area of
financing – physical commodity transactions – which is shifting
towards Geneva.
Dérobert does not expect a
significant exodus of private banks to Switzerland’s second city
despite Geneva being an important private banking centre.
Strong Swiss
showing
Mainelli suggests Switzerland has
been proactive in attracting private banking clients.
“Since 2007, Switzerland has been
making great strides – canton by canton – in targeting high net
worth individuals, opening accounts and negotiating long-term tax
deals. In contrast, I am not aware of any specific initiatives in
Hong Kong, while Singapore has become a bit tougher on its visa
regime and is targeting firms rather than individuals.”
Stuart Fraser, chairman of the
policy and resources committee at City of London Corporation,
admits ‘banker bashing’ has damaged the perception of the UK as a
welcoming business environment.
“However, there are no signs that
any private banks are considering relocating at the present time,”
he says.
Questioned on whether London was
facing the prospect of a brain drain, Fraser suggests that the
depth and quality of the international and domestic talent pools in
London were significant assets.
The City of London’s report
Understanding Global Financial Networks, published in May,
indicated that this situation is unlikely to change in the coming
years.
Retaining private banking activity
is an important part of a much larger agenda to ensure London
retains its pre-eminence as the leading global financial centre,
says Fraser.
“The recognition that the UK must be better represented at an
earlier stage of the European policy-making process (80% of our
regulation emanates from Brussels) has been welcomed by the
industry and is something the City of London has long been calling
for,” Fraser concludes.
