London and New York are the world’s best cities for the financial industry.
Both cities were rated the highest—with 775 points—on the semiannual survey carried out by Z/Yen for the City of London Corporation. Hong Kong and Singapore retained third and fourth place respectively, followed by Tokyo, Chicago, Zurich, and Geneva.
The survey, titled the “Global Financial Centers” report, is comprised of 64 factors divided into five categories—people, business environment, infrastructure, market access, and general competitiveness. For example, the people category has factors including quality of living and personal safety, and the infrastructure category has airport satisfaction, office space costs, and so on. Around 1,700 financial services executives all over the world took part in the survey.
Compared to the rankings last year, London has fallen dramatically as the heavy favorite, losing 15 points to share first place with New York, which gained 1 point to reach 775 points. New York has overtaken London in three categories—people, business environment, and infrastructure, although as most participants agreed, it suffered more from the economic crisis than London.
“London’s greatest challenges were likewise perceived to be the fear of a regulatory backlash and the levels of corporate and personal taxation that may drive high earners abroad,” the report said.
London’s high taxes a detriment
“This research is a wake-up call for decision makers that our standing as a world-leading global financial center should not be taken for granted,” said Stuart Fraser, policy chairman at the City of London Corporation. “Damage has been done, but it is not irreversible provided the new incoming government—regardless of political persuasion—makes a clear, positive statement on their ‘direction of travel’ with regard to tax and regulation,” he added, in regard to high tax and regulations that the British government has imposed on the U.K.’s financial sector, which led to London losing favor with many investors worldwide.
Besides the heightened 50 percent income tax, the U.K. government plans to impose a 50 percent tax on all bonuses above 25,000 pounds (US$37,550). Such aggressive controlling measures by the U.K. government have scared off investors and therefore provided other cities an opportunity to attract capital.
Hong Kong, Singapore rising
Asian global financial centers, especially Hong Kong and Singapore, have seen a dramatic double-digit point increase the in the ratings of the survey, therefore closing in on both London and New York for top place. Hong Kong has taken the No. 1 most favorite spot among insurance professionals for the first time toppling both New York and London, which lead all the other sector ratings.
“Hong Kong and Singapore have clear profiles as global leaders. Beijing, Dubai, and Shanghai are global contenders at present, in that they are all well connected but do not currently have sufficient breadth or depth in their financial services sectors to be global leaders,” according to the report.
Tokyo closes in as the No. 3 tiger in Asia, slightly behind Hong Kong and Singapore in points.
“Tokyo profiles here as an established transnational center, in that it has breadth and depth of financial services but does not currently demonstrate the required global connectivity,” said the report.
According to the survey, London, New York, and Dubai have suffered the most from the financial crisis.
“The main concerns voiced about New York were with regard to the potential for new regulatory arrangements to be damaging to competitiveness,” said the report.
Unlike U.S. financial centers, Canada seems to be gaining momentum in its rankings.
“New York has been impacted on the most by the financial crisis and has only risen by one point, while Canadian centers have seen a greater increase in scores than the U.S. centers,” said the report, referring to the fact that Toronto (12th place), Vancouver (23rd place) and Montreal (26th place) have gained significant points since the last rating.
“New York, Chicago, and Toronto all fit the profile of global leader—they are well diversified, well connected, and have strength across the sectors. San Francisco is profiled here as a global diversified center—it is well connected and serves a diversified industry but does not as yet show sufficient depth in enough sectors to be classified a global leader,” said the report in regard to the North American financial centers.