Let’s be frank with each other: London’s enduring success as a global financial centre reaches well beyond any of the recent headlines about derivatives and shares trading.
To truly understand it, one would do well to start by looking amid the shimmering glass and metal of the City’s contemporary skyline and taking a wander through the labyrinthine alleyways that inhabit its shadows.
There, in the 17 century, unlicensed stockbrokers – turfed out of the Royal Exchange once the number of traders there had been restricted – sought refuge in neighbouring coffeehouses to continue their business. It was here that many of the tools of today’s capital markets were invented, facilitating the dramatic expansion of Britain’s network of global trade and eventually leading to the birth of the London Stock Exchange.
The City’s tradition of innovation and pragmatism means that it continues to be at the forefront when it comes to the newest domains of financial services. Not even a global pandemic could stop London from posting a record for tech venture capital investment last year. And there is no sign that leaving the European Union has affected the appetite of foreign investors, with the UK attracting more tech investment than anywhere else in Europe and more than France, Germany and Sweden put together. This confidence is reflected in the fact that London is home to 43 unicorn companies – increasingly household names such as Transferwise, now Wise, Octopus Energy and Deliveroo for example – with more than 80 others that have the potential to secure similar status headquartered here.
This does not mean we can afford to be complacent. London remains a fantastic place to list with deep and liquid pools of capital, as well a cluster of specialist expertise. But there is no denying that we need to do more to attract IPOs – especially when it comes to entrepreneurial and fast-growing sectors such as tech.
There are several warning signs: the number of listed UK companies over that period has sunk by nearly half over the last quarter of a century, resulting in a net loss of 1,300 companies; the value of new issues has fallen by around two thirds in real terms to about £5bn a year; and the number of new issues has dropped from over 400 a year at its peak before the financial crisis to less than 100. We are also seeing a small but significant number of high growth UK companies opting to list in the US instead of London, leveraging the rise of US special purpose acquisition companies, or SPACs instead to access public markets more quickly, while Hong Kong and Singapore recently changed rules to attract more IPOs.
The UK needs to act now to reverse this decline. Even in an age when raising finance via alternative means through private equity or debt finance is easier than ever before, public market capital still matters and can grant the opportunity to scale globally through secondary fundraisings when listed.
With that in mind, the UK Listings Review led by Lord Hill and the Kalifa Review of the UK’s fintech sector could not be more timely.
As it starts a new chapter outside the EU, now is the moment for the UK to once again demonstrate adaptability and consider how to reinvigorate our capital markets.
This does not mean seeking sweeping deregulation, in what has sometimes been misleadingly called the ‘Singapore on Thames’ model. Rather, it means continuing to develop our own very successful ‘London on Thames’ offer while maintaining the highest regulatory standards.
There is much that can be considered and where we know there is common support across government, businesses and savers – whether it is simplifying the listings regime to make it easier for investors, modernising free float or prospectus requirements, encouraging retail participation, or embedding environmental, social or governance principles into the listings process to create the infrastructure befitting of a sustainable global financial system.
By taking such steps to strengthen London’s IPO appeal – especially if done in tandem with further efforts to create a favourable environment for seed capital, venture and growth funding – we will create the best conditions for the world’s most innovative firms to choose to list in the UK to fuel their scaling ambitions. This in turn will help companies to access the finance they need to grow, which will be an important pillar underpinning our economic recovery from the Covid-19 pandemic.
Of course, a key reason that London’s capital markets remain attractive to investors is transparency and high standards. So it is vital that any reforms do not compromise investor protection. But creative solutions to square this circle are possible when it comes to voting rights.
London’s position as a global financial centre should not be taken for granted. As demonstrated by the patrons of the City’s 17-century coffeehouses, success is dependent upon innovation and agile thinking. This is what has led to the UK’s fintech and green finance scene thriving today.
The bright vision we have outlined for the role of London’s capital markets will require the same approach. As the UK embarks on its new future, now is not the time to rest on our laurels.
Putting the framework in place today to attract tomorrow’s new enterprises, will pave the way for our future prosperity and revive the spirit of yesterday’s innovators, such as those that spilled out into Exchange Alley many centuries ago.
William Russell is Lord Mayor of the City of London. Charlotte Crosswell is chief executive officer of Innovate Finance.