Crawford's Directory of City Connections 2008
The City - Past, Present and Future?
Alderman David Lewis
The Rt Hon The Lord Mayor
Congratulations to Crawford's Directory on reaching its 35th birthday and 30th edition this year (2008)! Crawfords began as a slim 160-page volume, and today runs to nearly 1000 pages. The steady growth of this City directory reflects the tremendous success and exponential growth of the City of London and UK financial services.
The past 35 years in the City have been years of change, both financially and physically. Gone - except for the Metals Exchange - are the trading floors, gone the long lunches, gone the bowler hats. Here instead are sleek high rise offices, electronic business at the click of a finger, senior women in business, and not forgetting the futuristic Barbican, a cutting edge arts centre for London nestled in amongst the City's priceless stock of historic buildings and medieval streets.
During the past decade, the City of London, which is the brand name for all UK-based financial services, has become Britain's great success story. With funds managed of over £3.5 trillion, with over 600 foreign companies listed on the London Stock Exchange, and with 32% of global currency trading, London is the most international of all the world’s financial centres.
Within the City of London, a stunning 90% of the world’s trade in metals takes place, 25% of the world’s aviation and marine insurance and almost 50% of all ship brokering. And in the ever expanding area of derivatives trading, London has 43% of the Over the Counter market.
The London Stock Exchange lists more companies in any one year than the New York Stock Exchange and NASDAQ combined.
Today the UK-based financial and professional business services accounts for 14.5% of Britain’s GDP and employs over one million people. With a contribution of £25 billion to the UK balance of payments and a staggering quarter of the Treasury’s corporate tax take, this industry is hugely important to the EU economy.
It is, in short, a staggering success story. But how did it all happen?
Twenty years ago, we were all fearful that London might be outflanked by Paris or Frankfurt and we never dreamed that we would outpace New York.
But "Big Bang” in 1986 led to the removal of restrictive practices and a deregulation of the market. Now foreign companies can enter the market freely. Foreign companies can buy anything. Foreign capital and foreign nationals have contributed enormously to the success of the financial sector. Citigroup are now larger in London than they are in New York. Morgan Stanley has shifted its key global roles to London. And foreign nationals are welcomed in the City.
Indeed a large proportion of our talented people come from abroad - an estimated 30%. More than half our workforce is under 30 years of age and they are hard working and innovative. They relish change and they believe that nothing is impossible. These young people from all over the globe add greatly to the success of our financial economy.
Openness of market entry and competition are the prime factors in London’s success, but there are other factors too.
Firstly, the fiscal environment: the financial services industry is geographically very mobile. Money can flow from one country to another very easily. To be attractive, the fiscal environment has to be competitive. Recently, corporate tax rates were reduced. We have to keep an eye on the fiscal environment, to simplify it and to keep it competitive. Our new Chancellor of the Exchequer has announced his intention of continuing to simplify the tax regime.
Then there is the independence, which the present Prime Minister, Gordon Brown, gave to the Bank of England ten years ago when he was Chancellor of the Exchequer. This independence, with its focus on monetary policy, has helped to ensure a stable and successful macro-economy.
One of the most important success factors has been the regulatory environment. Our Government created a single, business-friendly regulator for all financial services: the Financial Services Authority (FSA).
The FSA does not act like the Securities and Exchange Commission (SEC). Instead, it relies on a principles, risk-based approach. This is very different from the line-by-line rules-based approach, with its box-ticking mentality.
The FSA, and its partner, the Financial Reporting Council, puts the responsibility on companies to manage their own affairs and to regulate their own business. This self-regulation requires companies to identify the risks of entering new business areas and then to manage these risks. This necessitates good corporate governance where the company itself has its own checks and balances via non-executives on the board of directors.
Companies that fail rarely do so because of poor internal systems. They usually fail because the wrong strategy has been chosen or because it has been badly implemented. We in the UK have put the emphasis on improving corporate governance rather than on introducing detailed rules. And the better the corporate governance in the business community the less need there is for detailed regulation.
The Sarbanes-Oxley legislation in the US was the wrong solution. It was a political reaction to the Enron and Worldcom failures. The UK model, unlike that adopted in the US, reduces the cost to global businesses of complying with detailed onerous regulations, such as Sarbanes-Oxley which has had a demonstrably detrimental effect on New York’s competitiveness. The Sarbanes-Oxley legislation did not address the core problem of poor corporate governance, yet it increased the burden of compliance and regulation. By adopting this business-friendly approach, the FSA has given the UK-based financial services a framework within which businesses can innovate and prosper.
There are many examples of new financial instruments and new areas of business that have been created in London in recent years.
First, is the derivatives market; I hardly need to describe these further. But I will draw your attention to forward freight derivatives. These new instruments have been developed by the Baltic Exchange in London and are now being traded by many finance houses.
Then secondly there is the fast-growing Islamic banking and insurance market. Many of the products now on sale throughout the Muslim world were invented, developed and marketed from London. Indeed, London has become the centre for Islamic finance, helped enormously by Muslims working in finance houses in London. They have been essential to its success. In 2007 the first billion dollar Sukuk to be listed on the London stock exchange raised £2.5bn.
Thirdly, London largely invented, and is home to, the world’s largest carbon emissions market, and is the global centre for emissions trading. This innovation has happy implications for a world needing to wake up to its responsibilities for the planet. We are involved in more than 50% of Clean Development Mechanism projects around the globe.
The result of this open market access and the favourable regulatory environment means that foreign financial companies have flocked to London. Today, 20 years after “Big Bang”, roughly 50% of City firms are foreign owned and there are 200,000 professionals from overseas in the UK financial services sector. Almost 50% of office property in the City is owned by foreign financial institutions, with German pension funds owning almost a quarter.
One of our true success stories is the London Stock Exchange. Because of an encouraging business environment, the LSE adapted to customers’ needs; putting in faster electronic trading and bringing more companies to the market. Today the LSE has the most liquid equity market and the largest institutional investor base. It is the most international of all the world’s stock exchanges, with over 600 foreign companies listed.
In 2006, 367 new companies joined the LSE whereas the combined total for NYSE, NASDAQ and Hong Kong SE together was 332. In 2006 $104 billion was raised on the LSE, compared to $69 billion on NYSE and NASDAQ combined. In first half of 2007 this pattern continued, US$26 billion raised on the LSE. NYSE and NASDAQ raised US$21billion combined.
In keeping with its international position as the global exchange, the LSE invented a new market to sit alongside its Main Market. Called the Alternative Investment Market or AIM, it is designed to bring young, growing companies to the attention of global investors. And it has proved very popular. In 2006, for example, there were 341 IPOs on AIM of which 109 were from outside the UK, from 27 countries. In fact, 72% of world’s total IPOs in the first half of 2007 went to AIM.
It is very simple and cheap to list on AIM. The regulation of AIM-listed companies is undertaken by the independent nominated advisers, called Nomads, under the supervision of the LSE. The Nomads are responsible for proper, good corporate governance in AIM companies and their proper regulation, not the UK regulator.
Another key success factor is the physical environment, both security and the physical infrastructure. The City of London Police is an independent Police force, which is the lead force in the country for the investigation of fraud. It has also built up a great reputation for physical security and the prevention of terrorism incidents. If people working in London feel safe and enjoy living and working in an attractive city, then it will attract the best financial executives from around the world.
In addition the City of London Corporation has focused on trying to ensure that the office buildings are modern, up to date and fit for purpose.
But THE key success factor is PEOPLE – and we are spending a lot of time encouraging business education and the development of professional skills. London has a pool of skills talent, which is second to none – and around a third of our people come from outside the UK.
The Coming year.
Over the coming year my theme for the Mayoralty is "World Class and Fit for the Future". As the ambassador for UK financial services, I will be visiting more than 20 countries. I am looking to promote the City's Global leadership, our "can do" approach, high ethical standards and integrity, fair, risk and principles-based regulation, and our maritime position - while striving to improve our offer.
A number of serious issues have arisen already this year for the competitiveness of UK financial services, among them the taxation of non-doms and the failure andnationalisation of Northern Rock. Both of these issues have shown the need to present the successes of UK financial and professional services even more robustly to government andto business overseas.
This year the Lord Mayor's appeal takes the theme "Investing in Healthy Lives, Healthy Vision, Healthy Futures" and is promoting the women's health charity Wellbeing for Women and sight charity Orbis.
The Future.
What is the future of the City of London? We hope to continue to innovate and build City business. Office space must increase by around a third to accommodate an estimated 400,000 office workers by 2020. It is estimated that over the next decade more than 90% of increase in employment in London will be in financial and business services, and as a sector it is growing at twice the rate of any other. Infrastructure is being comprehensively updated.
Carbon trading looks set to increase, with the Climate Change Bill suggesting a reduction of 60% by 2050, while across the EU we are committed to a 20% reduction in emissions below 1990 levels by 2020. We are co-sponsors London Accord project to work with business and universities on energy solutions for the future.
As economic power shifts to China and India, we are strengthening business and financial relations with those countries: today the City of London Corporation already has offices in Brussels, Mumbai, and three representative presences in Beijing, Shanghai and Shenzhen, and we believe that now and in the future they will be critical to our success. We are also working on Islamic finance products: today the world is 1/5 Muslim, and we must allow our Muslim citizens full access to the business and financial world. We know we have the edge in London today, and we want to keep that edge tomorrow.
We will continue to invest in our local communities: the City schools, the new Academies in our neighbouring boroughs, in the arts, and in making the City of London - and London as a whole - a great place to live and work. Today, independent reports show that London is at the top of the game - such a change, in just 35 years.
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Mr Alderman David Lewis, The Rt.Hon.the Lord Mayor – 2007/2008
Mr Alderman David Lewis took office as the 680th Lord Mayor of the City of London on Friday 9th November 2007.
David Lewis was educated at St Edward’s School and Jesus College Oxford, before going on to join international law firm Norton Rose in 1969. He was a corporate lawyer for 38 years with Norton Rose, during which time he worked in the City and the Far East, and rose to become a Senior Partner in 1997. He retired from this role in 2003 aged 55, and now acts as a consultant.
David is an Honorary Fellow of Jesus College Oxford and Churchwarden of St Margaret Lothbury. His involvement in the public life of London grew when he was elected an Alderman of the City of London (Broad Street) in 2001, and in the same year was made a Justice of the Peace. He was elected to serve in the office of Sheriff of the City of London in 2006/7.
He has also been involved in various voluntary and charitable roles, which at present include acting as Governor for Oxford Brookes University, as Trustee for the Mansion House Scholarship Scheme, and as Almoner and Governor for Christ’s Hospital. He is also a Liveryman of the Solicitors' Company, the Fletchers Company and the Welsh Livery Guild.
In 1970 David Lewis married Theresa Poole, a potter and artist with whom he has a son and a daughter, both married. He lists travel, welsh rugby, keeping fit and sheep farming amongst his many interests.
