London became the financial capital of the world in 2002, July 29th 2002 to be exact. July 29th 2002 was the day Sarbanes-Oxley became law in the U.S. and it killed New York’s status as the financial capital of the world. Several thousand financial firms vacated New York and fled to the new world.

London welcomed business and did not plague private equity firms as well as hedge funds with idiotic and counter-productive regulation. London boomed and to this day remains the financial capital of the world.

The UK parliament made a few big mistakes over the past few years which gnawed away at the positive sentiment. The first mistake was the hike in capital gains taxes under Gordon Brown from 10% to 18%, a whopping 80% increase. Strike One!

The second mistake was an increase in capital gains taxes to 27% under the current government. Strike One and a Half! Three strikes and you are out, but thank the monarch for the Queens Laws which counter parliaments move to calm public outrage. Since then the UK became the sole protector of the global financial world and the only EU country to block a financial transaction tax. Recent moves to curb bonuses, limit risk-taking and brush over its light regulatory system was Strike Two and a Half!

Several regulatory changes on the horizon will hurt the best status any country can hope for and the monarch is intelligent to counter public servant idiocy.

The most recent scandal, the $360 Trillion LIBOR fixing scandal which caused Barclays to pay a 290 million pound fine as well as the departure of its CEO Robert Diamond did raise the question about London’s status. Regulators in Germany probe Deutsche Bank and their involvement and overall probably a dozen banks may be under investigation before the third-quarter closes.

Lehman Brothers as well as AIG placed trades which led to their collapse in London, JPM had its whale in London which caused over $2 billion in losses and so did UBS. Almost every global financial firm relocated its hedge fund operations to London, but given the recent scandals some may shy away and if they will do so they will lose big time.

London does fight EU propositions about a EU bank regulator which would exclude London and many believe it may cause a disadvantage, but who cares about banks? London shelters the brightest sector of the global financial world, private equity and hedge funds. London will not raise the flag and surrender to EU socialists. As goes London, so goes the UK and London lives off of private equity and hedge funds which is why the Queen will act as protector of last resort if necessary. God Save the Queen!

London has not been impacted so far by the scandals and given the overall picture will remain proud to be the financial capital of the world at least until they make half a mistake which would be their Strike Three. At the moment the scandals will cause some headlines and will be shifted into the rearview mirror as fast as they became popular.

Having said that, Singapore does close the gap rather fast and should London slip one half time we may witness a similar exodus of private equity firms and hedge funds we have witnessed in 2002 which saw an exodus from New York to London.