Post-Brexit Challenges Push London to Modernize Financial Market

London Aims to Regain Financial Hub Status with Strategic Reforms

by Faruk Imamovic
Post-Brexit Challenges Push London to Modernize Financial Market
© Getty Images/Dan Kitwood

London, once heralded as the financial epicenter of the world, now finds itself in a fierce battle to retain its relevance in the global market. Amid rising concerns that the city is losing its magnetism for publicly traded companies, the British government is rolling out a series of reforms aimed at revitalizing London's allure. This strategic move seeks to draw businesses back to its stock exchange, especially in the wake of Brexit and the competitive pressure from other financial hubs like New York, Hong Kong, and Singapore.

The Shein Shift: A Potential Game-Changer

One of the most talked-about potential listings is that of Shein, the Chinese online retail giant. Originally eyeing a New York IPO, Shein reconsidered as tensions between Washington and Beijing escalated. Now, London is emerging as a strong contender for Shein's initial public offering (IPO). According to insiders, this pivot could mark a significant victory for the UK, which is eager to restore London's status as a premier financial center.

Jeremy Hunt, Britain's Chancellor of the Exchequer, has been instrumental in this courtship, recognizing that a major IPO like Shein’s could not only boost the London Stock Exchange but also set a precedent for other companies to follow suit. Despite declining to comment, Hunt's efforts reflect a broader strategy to modernize and invigorate the city’s financial sector, shifting the focus from traditional industries like banking to burgeoning tech enterprises.

London's Waning Clout and the Brexit Impact

London's reputation has undeniably suffered post-Brexit. Concerns about the migration of banks and financial resources to continental Europe were somewhat exaggerated, yet the impact remains palpable. Amsterdam overtaking London as Europe's largest share-trading center exemplifies the challenges faced. This shift underscores the urgency for London to adapt and innovate to maintain its competitive edge.

Gbenga Ibikunle, a finance professor at the University of Edinburgh Business School, notes that London's diminished status is not merely about pride. “London used to be recognized as the center of the finance world,” he explains. “We know that is no longer the case, and that has been exacerbated by the fact that we’ve left the E.U., and so there is a reduced number of trading, in terms of volumes, in London. And so that also reduces some of the clout the market has.”

Pedestrians cross the street near Harrods luxury department store on April 22, 2022 in London, England.
Pedestrians cross the street near Harrods luxury department store on April 22, 2022 in London, England.© Getty Images/Hollie Adams

The reduced trading volumes have chipped away at London’s market influence, necessitating a robust response to reclaim its former stature. The Brexit fallout has highlighted the need for the city to evolve and diversify its financial offerings to remain a key player on the global stage.

The Strategic Reforms: Aiming for a Tech Renaissance

To combat these challenges, the British government has initiated a slew of reforms designed to make London's financial market more appealing, especially to tech companies. These reforms include reducing the public shareholding requirement from 25% to 10% and permitting certain dual-class share structures on the premium segment of the market. Such changes are geared towards attracting tech founders who wish to maintain greater control post-IPO.

Scott McCubbin, who leads EY’s IPO team in the United Kingdom and Ireland, underscores the importance of these reforms. “The rule change that’s going on right now is saying we need to make ourselves much more attractive to tech businesses, particularly start-ups, particularly businesses that don’t have a long track record of profitability,” he says. It’s about focusing on companies that build on “what does the next 10 years look like, not what did the last 10 years look like.”

Julie Shacklady, a director at UK Finance, acknowledges that while some reforms are already in place, the full spectrum of changes is yet to be implemented. “So we are not really seeing yet the benefit of the totality of the reforms,” she says, expressing cautious optimism for a market rebound later in the year.

The Broader Economic Implications

Beyond the symbolic importance, a thriving pipeline of public listings is economically beneficial. It supports a diverse array of jobs in finance and professional services, and publicly listed companies are subject to more rigorous scrutiny, offering better transparency into the economy’s health.

Despite London's struggles, it remains a more attractive IPO destination than its European counterparts such as Paris and Amsterdam. However, the statistics are telling: while only 16 companies went public in New York last year (an 84% decrease from 2022), they raised a collective $9.5 billion. In contrast, London saw just 10 companies go public, raising a mere $442.7 million, an 88% drop.

Looking Forward

Despite these sobering figures, there are signs of optimism. London is positioning itself to capitalize on emerging opportunities. For instance, Raspberry Pi, the low-cost computer manufacturer, has announced plans to go public on the London Stock Exchange. Furthermore, a wave of companies backed by private equity firms may also bolster London’s listings in the near future.

In promoting London as an attractive financial hub, Jeremy Hunt and Treasury minister Bim Afolami have been actively engaging with tech companies. At a recent event, Afolami expressed confidence in London's prospects: “For a couple of years we’ve beat ourselves up, but actually this year we are very optimistic that we’ve really turned a corner.”

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