Tue, Mar 5, 2013

The End of an Era?

London and New York have long been considered the world’s leading financial centers but how long will this remain the case?

Less than one in six (15%) senior executives surveyed, believe that the established financial centers will be replaced within five years by Hong Kong, while half of the respondents pin-pointed Shanghai as the leading emerging financial center.

The perceived shift from established financial powerhouses to less established emerging nations, was also supported by one in 10 executives who see Sao Paolo and Dubai as financial centers to look out for as their economies continue to blossom.

While this forward-looking shift in power remains a much talked about point, London remained the leading financial center for two thirds of the CEOs and directors of financial services companies interviewed, although less than half believed this would remain the case by 2018.

By comparison, New York is expected to hold its ground during this same period: One third (31%) of respondents named New York as the world’s leading financial center, and the same number expected it to maintain this position over the next five years.

The financial stock of the East is rising, and Hong Kong and Shanghai are now serious contenders for this mantle – and perhaps sooner than a lot of people think. Our survey has revealed that a significant minority of CEOs now believe that Hong Kong could join London and New York as a world-leading financial center within the next few years, largely because of its proximity to China’s savings market, as well as its respected regulatory and legal system.

Commercial opportunities often dictate where companies do business and the financial sector is no exception, with 83% of executives stating this was the main reason for the shift in focus towards promising financial centers. Just over 13% said that they make this decision based on the regulatory infrastructures in place.

With this in mind it is not surprising that a large number of firms are moving towards, and are attracted to, Hong Kong and other emerging markets, although a lack of focus on regulation is slightly disconcerting as it is not seen as a key priority in business.

Regardless of commercial opportunity and the development of new financial centers, regulation remains a key driver for markets. As other financial centers increase their profile and influence, more national regulations will impact global firms across jurisdictions.

For our clients operating across jurisdictions, our advice is to consider the regulatory and compliance requirements in each jurisdiction and then focus compliance teams on adhering to the ‘highest common denominator’ of regulatory requirements. This approach not only ensures that a truly global set of compliance procedures (and associated culture) exists across a firm, but also gives reassurance to senior management that all regulatory risks created by transactions in any jurisdiction are equally well mitigated.