The City of London's Evolving Landscape: A Tale of Analysts and Regulation
In the heart of London, a quiet revolution is taking place, one that is reshaping the financial landscape and the very fabric of the City's identity. It's a story of analysts, brokers, and the relentless march of regulation, where the past meets the present in a complex dance of change. As an expert commentator, I find myself drawn to this narrative, for it is a microcosm of the broader trends shaping our global economy.
The City of London, once a bustling hub of financial activity, is now undergoing a transformation. The days of the bustling analysts, armed with their lists and notes, are fading into memory. These analysts, the gatekeepers of information, were once the lifeblood of financial journalism, providing insights and analysis that shaped the market. But the advent of MIFID II, an EU directive aimed at enhancing investor protection, has dealt a blow to this traditional model.
MIFID II, introduced in 2018, forced brokers to charge separately for research, a move that had a profound impact on the small and mid-cap segment of the UK equity market. David Enticknap, CEO of Extel, observes that this change was not a fatal blow but a painful one. The numbers bear out his assessment: from 29 small and mid-cap retail analysts in 2007, the number has dwindled to just 17 today. Similarly, support services analysts have seen their ranks reduced from 26 to 20.
This decline is not just a numbers game. It reflects a broader consolidation in the industry, with stalwart names like Investec, Peel Hunt, and Shore Capital remaining, while others like Bridgewell Securities, Oriel Securities, Cenkos Securities, and Seymour Pierce have faded into history. The sectors covered have also shrunk, from 18 in 2007 to just nine today, with Chemicals, Metals & Mining, and Transport & Logistics among the casualties.
However, there is a glimmer of hope on the horizon. The Financial Conduct Authority, following the Investment Research Review in 2023, has softened the rules, allowing asset managers to bundle payments for research and trade execution once more. This has given rise to signs of recovery, with Enticknap detecting the seeds of a resurgence. But the question remains: can the City of London revive its former glory?
In my opinion, the answer lies in the hands of the young blood entering the business. In 1996, Alistair Darling, then the Labour Party's City spokesman, observed that a good ranking in the Extel survey could add thousands to an analyst's salary. Today, with young graduates chasing fortunes in tech, enticing them back to the City may prove challenging. But persuading them that being a broker's analyst remains a noble calling will be vital if the London market is ever to revive.
The City of London's story is not just about analysts and brokers. It is a tale of regulation, consolidation, and the relentless march of time. As we look to the future, it is clear that the City must adapt to the changing landscape, embracing new technologies and innovations while preserving its rich history and tradition. In the end, it is not just about the analysts, but about the very soul of the City itself, and the role it plays in shaping our global economy.
