Let’s be honest with one another: London’s continued success as a global financial center extends well beyond recent headlines about derivatives and stocks trading.
To really understand it, one should first look into the shimmering glass and metal of the city’s contemporary skyline and stroll through the labyrinthine alleys that inhabit its shadows.
There, in the 17th century, unlicensed stockbrokers who quit the Royal Exchange after the number of traders there was limited, sought refuge in neighboring coffeehouses to continue their business. It was here that many of the tools of today’s capital markets were invented that enabled the dramatic expansion of the UK’s global trading network and eventually led to the creation of the London Stock Exchange.
The city’s tradition of innovation and pragmatism means it continues to be at the forefront of the latest areas in financial services. Not even a global pandemic could stop London from setting a record for investments in technical venture capital last year. And there is no evidence that leaving the European Union has hurt the appetites of foreign investors. The UK attracts more technology investment than anywhere else in Europe and more than France, Germany and Sweden combined. This trust is reflected in the fact that London has 43 unicorn companies – increasingly big names such as Transferwise, now Wise, Octopus Energy and Deliveroo – and more than 80 others with the potential to secure similar status here.
This does not mean that we can afford to be complacent. London remains a fantastic place to list with deep and liquid capital pools as well as a group of expertise. However, there is no denying that we need to do more to attract IPOs – especially when it comes to entrepreneurial and fast-growing sectors like technology.
There are several warning signs: the number of UK publicly traded companies has fallen by almost half over this period over the past quarter 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 around GBP 5 billion a year. and the number of new issues has fallen from over 400 a year at its pre-financial crisis peak to less than 100. We are also seeing a small but significant number of high growth UK companies that are choosing to list in the US rather than London and take advantage of the rise of US special purpose vehicles, or SPACs, to gain faster access to public markets while Hong Kong and Singapore recently changed the rules to attract more IPOs.
Britain must act now to reverse this decline. Even at a time when raising finance through alternative means through private equity or leverage is easier than ever, public market capital continues to matter and offers the opportunity to scale globally when listed through secondary fundraisers.
With this in mind, the UK Listings Review led by Lord Hill and the Kalifa Review of the UK Fintech sector couldn’t be more up-to-date.
Now that a new chapter begins outside the EU, now is the time for the UK to once again demonstrate adaptability and consider how we can revitalize our capital markets.
This does not mean that it is seeking comprehensive deregulation, which has sometimes been misleadingly referred to as the “Singapore on Thames” model. Rather, it means further developing our own very successful “London on Thames” offering while maintaining the highest regulatory standards.
There is a lot that can be considered, and where we know, there is joint support between government, businesses and savers – whether it is simplifying the listing regime to make it easier for investors to meet the free float or prospectus requirements modernize, encourage retail participation or embed the environment, incorporate social or governance principles into the listing process to create the infrastructure that fits into a sustainable global financial system.
By taking steps like this to enhance London’s IPO appeal – especially when combined with further efforts to create a favorable environment for seed capital, venture capital and growth finance – we are creating the best conditions for the world’s most innovative companies to thrive UK to decide to go public to fuel its scaling ambitions. This, in turn, will help companies gain access to the funding they need to grow. This will be an important pillar that underpins our economic recovery from the Covid-19 pandemic.
One of the main reasons that London’s capital markets remain attractive to investors is of course transparency and high standards. It is therefore important that reforms do not compromise investor protection. But creative solutions to square that circle are possible when it comes to voting rights.
London’s position as a global financial center should not be taken for granted. As the patrons of the city’s 17th-century coffee houses have demonstrated, success depends on innovation and agile thinking. This has resulted in the UK fintech and green finance scene thriving today.
The brilliant vision we have outlined for the role of London’s capital markets calls for the same approach. As the UK begins its new future, now is not the time to rest on our laurels.
If we create the framework today to attract tomorrow’s new businesses, it will pave the way for our future prosperity and reinvigorate the spirit of yesterday’s innovators as they appeared on Exchange Alley centuries ago.
William Russell is Lord Mayor of the City of London. Charlotte Crosswell is the Managing Director of Innovate Finance.