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Can London stay a financial hotspot?

Britain leaves the EU

​It's been nearly four months since the referendum that saw the UK vote to leave the EU, and now much of the initial backlash has faded, many are turning their attentions to the long-term impact it could have on the economy and trading.

One of the most pertinent questions surrounds whether or not London will be able to keep its position as the financial capital of Europe.

It is expected that its chief competitors will be aggressive in their bid to overthrow the UK capital as the hotspot for trading in the EU.

Currently, London has more than 40 per cent of the global market for currency trading, while around half of the world's interest-rate swaps business happens in the City. There are still mixed views on what deal will be struck once Britain triggers Article 50 and starts negotiations to leave the EU.

However, economically strong members - like Germany and France - are bound to want to deter other countries from leaving the union so are unlikely to give post-Brexit Britain a too favourable deal when it comes to trading and freedom of labour.

Experts like former Bank of France Governor Christian Noyer has said the remaining 27 countries could simply not "tolerate" London being such a dominant trading centre as it hasn't adopted the euro and would not be tied to European regulations.

He said: "If Britain left the EU, the euro area authorities could no longer tolerate such a high proportion of financial activities involving their currency taking place abroad.

"It is already very difficult for euro members to accept that our currency is largely traded outside the currency area, beyond the control of the ECB and of euro area institutions such as market regulators."

Just a matter of hours after the vote was announced, investors were being encouraged to move their efforts to Paris. Although France was pro-remain, the country was understandably quick to promote its own financial prowess and to urge any investors thinking of leaving the City to move over the channel.

However, like many aspects of Brexit, it's a complicated matter. Firstly, Paris will have fierce competition for the top spot from the likes of Frankfurt, Luxembourg, and even Dublin.

Undoubtedly many aspects of Paris make it attractive to prospective investors. It is already home to several major European banks and, as such, has a number of skilled professionals in the finance sector. Other assets like affordable office space and an attractive work-life culture are also likely to persuade investors to consider it as a potential viable alternative.

However, the country also has a number of problems that could see it lose out to its rivals. For one, France has much higher taxes and related costs when it comes to recruiting staff, making it much more expensive to hire a skilled professional in France than anywhere else in Europe.

There is also a problem with the country's view on high finance itself. President Francois Hollande said during his presidential campaign that his greatest “adversary” was the world of finance. He also introduced his infamous 75 per cent tax on any earnings over €1 million, although this was later scrapped.

Of course there will be other countries, like Germany, who will look to take the crown from London, but it's also possible that the City could remain a big player - if not the top dog - in European finance.

For a number of reasons, London is an attractive place to trade and will continue to be so even after Britain leaves the EU. A strong court system across the country ensures that laws are upheld, which involves the protection of creditor and shareholder rights, while its leading universities mean it has many more sophisticated professionals in economics and finance than a lot of its rivals.

In addition, the UK’s tax and employment regulation is much kinder to financial investors than elsewhere in the EU. All of these factors could see London stay a competitive financial hub in the wake of Brexit, but the true impact - and whether EU members like France and Germany can overthrow it - remains to be seen.