Ad Hoc Commentary – London set to decline as a financial center due to regulatory competition
There are many reasons for New York fall from grace as the IPO center of the world. Academics might debate the reasons:
The U.S. Left Behind: The Rise of IPO Activity Around the World
But, a simple explanation is America hyper-regulated with Sarbanes-Oxley after Enron and WorldCom. New York suffered, London benefited.
London today is moving towards hyper-regulation, and repeating the mistake of New York. The light-touch regulator, the Financial Services Authority (FSA) had closed shop in Mar; and had been superseded by the Prudential Regulation Authority (overseeing banks and insurers), the Financial Conduct Authority (overseeing markets and customers), and the Financial Policy Committee (overseeing stability and growth).
Competition is good everywhere except in regulation. Regulatory competition will only lead to hyper-regulation. They should have studied the competition between the SEC and CFTC in America.
The damage is done. The FCA scored big in the Libor scandal. My guess is that the PRA would want to score big too – after all regulators compete for budgets too. Do you think the FPC will want to be left behind? Wouldn’t this competition just end in over-regulated markets? By introducing regulatory competition, London had put herself at a huge disadvantage as a financial capital.
The regulatory competition is perhaps the bigger evil than all these fear about EU exit. Yours truly wouldn’t worry about limits on bonuses set by EU on banker’s pay. Only a dullard can’t figure out the loopholes to pay his bankers more.
Good luck in the markets.