UK faces increasing competition from rival financial centres

The UK faces increasing competition for future investment and financial services activity from other global financial centres, and risks losing out unless action is taken to protect the country’s position.

A new report from UK Finance and Norton Rose Fulbright draws on the work of UK Finance’s international bank membership, supported by detailed interviews with senior executives from 14 non-UK-headquartered banks. Together, those institutions employ approximately 35,000 people in the UK.

International banks provide an important overall view of the competitiveness and dynamism of the wider UK financial services sector, given they make ongoing decisions about where to deploy capital, book risk and build teams.

The report affirms that the UK retains significant strengths, including deep capital markets, legal certainty, world-class talent, an advantageous time zone and international connectivity.

However, the research finds that combined taxation, operating costs, mobility barriers and post-Brexit market-access considerations could gradually divert future investment and activity to competing jurisdictions in North America, Europe, the Middle East and Asia.

Notably, several executives said that, if choosing the location of their European or global operations today, they would no longer automatically select the UK as their central base.

The report, which is being published alongside UK Finance’s Budget submission, includes a number of calls for action from UK Finance to preserve the UK’s strengths and ensure it remains internationally competitive. Its recommendations include:

• Maintain the UK’s openness to international business, including by safeguarding the flexibility of the third-country branch regime and reducing unnecessary regulatory duplication.
• Maintain a competitive tax environment, including by avoiding sector-specific tax increases on banks and financial services firms and setting out a stable, long-term tax framework that supports investment, hiring and client activity.
• Strengthen access to international talent, including by streamlining visa and sponsorship routes for specialist roles, supporting international mobility and ensuring reforms to the Senior Managers and Certification Regime reduce unnecessary costs.
• Accelerate innovation and capital-markets reform, including by treating AI-enabled financial services as a strategic priority and advancing wholesale-market tokenisation and digital-money initiatives.
• Establish an annual International Banking Roundtable, bringing together ministers, regulators, the Office for Investment: Financial Services and senior banking leaders.

David Postings, Chief Executive of UK Finance, said “Financial services are a vital part of the UK economy and a critical driver of growth. Our deep capital markets, world-class talent and trusted legal and regulatory system remain formidable strengths, but international competition is intensifying and we cannot afford to take our position for granted.

“The UK must offer a stable and competitive environment for firms deciding where to invest, hire and grow. The right approach to tax, regulation, skills and innovation will help ensure the UK remains one of the world’s leading financial centres.”