London As A Global City Is Shaping Fintech
By David Nicol, CEO of LedgerEdge
London is a vibrant financial centre because of its fundamental attributes: pragmatism in rulemaking, clarity in the law, a fair system for dealing with infringements, and an international network of highly qualified finance professionals. Is this advantage under threat from Brexit?
While we may be prisoners of geography in the trade of physical goods, trade in services is different, research from Professors Saul Estrin and Daniel Shapiro shows. Distance still matters but the starting point is more important. Services, particularly knowledge-intensive services, may, originate in, and are traded with, a relatively small number of global cities.
Global cities mitigate the influence of cultural, administrative and economic differences by providing sophisticated communication, education and transportation infrastructure, as well as the cosmopolitan values to attract and retain talent. Hence why it easy to move people and services between global hubs such as London, New York, and Singapore.
When it comes to financial technology, London is in a league of its own.
New ventures depend on the combination of ideas, capital, and talent with a relentless focus on market realities. London is an agglomeration for ideas in capital markets. Smart people work in and around exciting businesses all day, then (pre-Covid) often unwind in a pub or go for a run. All of the Silicon Valley co-working spaces have tried to replicate this model because the combination of collaboration, competition, and intelligent people breeds new ideas.
As a global hub for financial assets and businesses, London sees a healthy share of global capital flow through its streets. The capital to back innovation is available and (as we’ve discussed before) searching for the next big return.
Ideas and capital are nothing without strong talent to execute. The range of finance and technology businesses fed by graduates from global-powerhouse universities produces a strong talent pool.
When we consider ideas, capital, and talent, the persistent truth about cities is that the rich get richer. Remote work has begun to erode the need for physical proximity, but those who have been in the start-up trenches know that meeting and collaborating in person is a serious advantage.
The final key to successfully introducing a new idea to the world is contact with reality – with customers. You need to deeply understand the problems they face today, their requirements for a successful solution, and the opportunities where you can change the game in a revolutionary way. Further, a new market approach like ours at LedgerEdge needs to start from a place of trust and some healthy collaboration with market participants.
Almost all of the firms who can best validate revolutionary ideas in our space – the corporate bond market – have a presence in London. London was the natural choice for us because it is the place where capital, ideas, clients and talent intersected.
The proof is – as they say – in the pudding. The local fintech market has grown by nearly 70% since 2015 according to HM Treasury. And the UK is the top fintech hub in Europe, with London taking the lion’s share of the $4.1bn investment, Innovate Finance said this week.
The energy of innovation
That said, there is deep uncertainty about the future of the UK’s relationship with the EU in financial services.
As the UK Government and the European Commission negotiate a deal on this critical sector, they should think deeply about the power of global cities and the competitive advantage they have in the global economy.
Our decision to launch LedgerEdge was made public in the middle of 2020, nearly four years after the Brexit vote. We are hopeful that the downsides to Brexit do not outweigh the innovative energy in this global city.
The review is an opportunity to recalibrate MiFID II regulations post-Brexit.
Trade associations have asked for an extension of the temporary equivalence decision for UK CCPs.
Temporary equivalence is set to expire on June 30 2022.
IRS trading volumes have fragmented without an equivalence agreement.
Most EU member states had an increase in bankers earning more than €1m.