How London Became the World's Financial Centre

The City of London

London's primary financial district is a city in itself. Known as The City of London, it was established a few years after the Roman invasion in AD 50 on the north bank of the river Thames and even has its mayor and governing body called City of London Corporation.

The River Thames was a common trading point, even before the 1500s and till this day. People used to trade things like silver and gold, clothes, fresh food, tropical fruits, sugar, vinigar, salt, pepper, tools, wood, different cargo, and even people. 

Photo: Slate Magazine

The River Thames provided easy access for the trade early on, then as the rail network became popular, major national and international networks were created.

Also, London's oldest highway is the Thames. Until the opening of Westminster Bridge in 1750, London Bridge was the only crossing. Most journeys across the river and many trips within London were made by boat. 

Photo: Wikipedia

Like other ports, commerce flourished in the city, and it drew merchants and entrepreneurs from all over. These merchants established guilds and wielded great influence and power. They were able to secure autonomy and special freedoms and rights for the residents that businesses in the area enjoy to this day.

The merchants also went into banking and developed the sector. The Bank of England, which stands in the middle of the city, was a private corporation started by merchants in 1694 during the Nine Year War to fund the government's military efforts. It received various long-term privileges and became a monopoly.

Coffee houses, numerous within the city's walls around this time, were used as makeshift offices that would become financial institutions. The London Stock Exchange was started by stockbrokers who conducted business in Jonathan's Coffee House in Change Alley. Similarly, the insurance market Lloyd's of London was named after a coffee house on Tower Street that was used by marine underwriters.

Map displays the various guild halls in London.

Photo: by Robert Walton in 1676, Harvard Library

London borrowed and improved upon financial innovations from Amsterdam, the world's trading and financial center in the 17th century. It developed a market-centered system as opposed to the bank-centered one in the Dutch city and grew more dominant in the 18th century as the Netherlands witnessed an economic and political decline.

London then competed with Paris to be the biggest global financial hub until the Mid-19th century. Paris lost out in 1848 when the Bank of France suspended specie payments after France lost a war with Prussia.

London's Finance Industry

Today the city competes with New York City for the status of the world's major financial centre.

Much of London's finance industry is located at the "Square Mile" or the "City," the long standing business hub of London. The other major financial district is the Canary Wharf area, about four kilometres east of the city. Both these financial districts experience growth but restrictive planning policies within the city make Canary Wharf the first choice for most new firms. It is estimated that the financial services sector employs about 315,200 people within the city.

Apart from traditional banking activities and insurance, London also thrives as a centre for foreign exchange and bond trading. The city teems with many trading facilities and trading hubs in foreign exchange, futures, global insurance and bonds. The foreign exchange market has a daily global turnover of about 2.5 trillion GBP. London accounts for about 0.73 trillion or 36.5 percent of the pie. The Bank for International Settlements estimates that London generates 0.88 trillion or 46 percent of daily global revenue in the interest-rate derivative market.

London has always been the seat of many multinational financial organisations. Many major financial institutions currently having their headquarters in London.

The London Gold Market is the world's largest wholesale gold market, and in conjunction with the, is one of the two gold markets that dominate worldwide gold price discovery.

In addition, sitting at the nexus of European, Asian and US time zones, the business opportunities in London are extensive, attracting more European HQs than any other city.

Big Bang

The Big Bang refers to the day the stock market was deregulated in London, England. The event, in which the London Stock Exchange (LSE) became a private limited company, took place on October 27, 1986. 

Before the Big Bang, the LSE was trailing the other major exchanges in the world. At the time, the New York Stock Exchange (NYSE) was the biggest market worldwide, determined by the turnover rate. London was only able to turn over 1/13 of the volume transacted by the NYSE. 

Photo: BBC

In 1983, Prime Minister Margaret Thatcher and her Conservative government decided to go through with the process of deregulating the city of London along with its banks. This was a priority for Thatcher's government in order to free up the markets and because the LSE was embroiled in an antitrust case brought forth under the previous government by the Office of Fair Trading. At issue were the LSE's rules on commissions, the independence of jobbers and brokers, and the lack of foreign membership from the exchange. Thatcher's finance minister, Nigel Lawson, implemented the changes that resulted in the Big Bang on one single day: October 27, 1986. 

The Big Bang witnessed many changes in the financial markets, including the removal of fixed commission charges, the distinction between stockbrokers and stockjobbers, and the switch from open-outcry to electronic trading. It was dubbed as such because of the expected rise in market volatility and activity on the day when changes in the structure of the financial market were made.

The effects of the Big Bang were dramatic, with London's place as a financial capital decisively strengthened, to the point where it is arguably the world's most important financial centre.

The super-rich prefer London 

Super-rich is a term equivalent to that of 'Ultra High-Net-Worth Individuals' (UHNWI). Anyone with a personal wealth of more than $30 million is considered super-rich.

According to Knight Frank's 2019 Wealth Report, the city with the highest number of super-rich is London (4,944). Next would be Tokyo (3,732), then Singapore (3,598), and then New York (3,378).

As most one of the world's most important global cities, London has been called the world's most powerful, most desirable, most influential, most visited, most expensive, sustainable, most investment-friendly, and most-popular-for-work city. It exerts a considerable impact upon the arts, commerce, education, entertainment, fashion, finance, healthcare, media, professional services, research and development, tourism and transportation.