The London exodus of fintech IPOs

For well over a decade, London has earned its reputation as a premier global hub for financial technology. With a vibrant ecosystem of startups, a deep pool of talent, and a regulatory environment often praised for its innovation-friendly approach, the City seemed uniquely positioned to lead the world in fintech. However, recent developments are casting a shadow over this narrative. A growing number of the UK’s most promising and high-growth fintech firms are making a strategic choice to shun the London Stock Exchange (LSE) for their public listings, opting instead for rivals in New York and Frankfurt.

This trend, which we will call the “London Exodus,” is more than a series of isolated events; it’s a critical signal that the UK’s capital markets are struggling to keep pace with the needs of a new generation of digital businesses. This article explores the factors driving this shift, from the perceived lack of liquidity to the challenges of investor appetite and regulatory agility. We will also examine the UK government’s response and the urgent steps needed to reinforce London’s position in the global fintech race.

The Wake-Up Call

The issue has been brought into sharp focus by a number of high-profile decisions:

• Bitpanda: The Austrian crypto exchange, recently expanded into the UK, stated it would not consider a London IPO. CEO Eric Demuth cited the LSE’s lack of liquidity and warned that “everybody’s moving away from the London Stock Exchange.”
• Wise: The British money transfer giant recently moved its primary listing from London to New York. This move, driven by a shareholder vote, was aimed at attracting a broader investor base and increasing liquidity in its shares.
• Monzo: The UK challenger bank has also been exploring a US IPO, with its founder noting it is “not rational” to list in London due to the advantages of US public markets.

These decisions are not anomalies; they are symptoms of a broader problem. IPO fundraising on the LSE hit a 30-year low in the first half of the year, with a number of firms choosing to either delist or be taken private. This exodus includes some of the UK’s most successful tech companies, like Darktrace and Deliveroo, and has prompted an “urgent rallying cry” from industry leaders to reverse the market’s decline.

The Root Causes

The reasons behind the London Exodus are complex and multifaceted, but a few key issues consistently emerge:

1. Lack of Liquidity and Investor Depth: Liquidity is the lifeblood of a stock market. For high-growth fintechs, the ability for investors to easily buy and sell shares is paramount. The LSE, by many accounts, lacks the deep pools of institutional and retail capital that are abundant in markets like the Nasdaq and NYSE. This can lead to lower trading volumes, which in turn can suppress valuations and make the market less attractive for founders and early investors.
2. The Valuation Gap: Fintechs and other tech companies consistently find that they can command higher valuations on US exchanges. A number of factors contribute to this, including a larger pool of specialist technology investors in the US who are more comfortable with high-growth, loss-making companies and are willing to accept lower dividends for the promise of long-term returns.
3. Regulatory and Structural Hurdles: While the UK has been praised for its overall fintech regulatory environment, its listing rules have been cited as a deterrent. For a long time, the LSE’s rules have been less accommodating for founders who want to retain control through dual-class share structures—a common practice for tech giants in the US. The LSE has made changes to address this, but the perception of a less flexible market persists.
4. Stamp Duty: The UK’s stamp duty on share purchases is an “unnecessary self-inflicted wound,” according to many in the industry. It’s a friction point that penalizes investors and makes the UK market less attractive. Many argue that removing it for tech stocks would not result in a significant loss of tax revenue given the dearth of tech giants on the LSE, but would send a huge signal to the world.

The UK’s Response

The UK government and the City are not ignoring this problem. They are fully aware of the crisis and are taking steps to address it, viewing it as a critical issue for the nation’s economic future.

• The Financial Services Growth and Competitiveness Strategy: Chancellor Rachel Reeves has launched a strategic push to attract fintech listings, including the formation of a “Listings Taskforce.” The goal is to make the UK “the most attractive place for firms to start up, scale up and list.”
• Proposals from Industry Leaders: In a recent LinkedIn post, Barney Hussey-Yeo, CEO of the UK fintech Cleo, proposed five bold actions to reverse the trend, including killing stamp duty on tech stocks, accelerating Mansion House reforms, and creating new “tech ISAs” to incentivize retail investment in high-growth companies. His message was clear: “Britain must compete – or decline. Choose.”
• Regulatory Reform: The LSE has taken steps to reform its listing rules, including lowering the free float requirement and allowing dual-class share structures. The Financial Conduct Authority (FCA) is also focused on a “smarter” approach to regulation, aimed at making it easier for firms to innovate and grow.

A Crossroad for the UK’s Capital Markets

The London Exodus is a powerful wake-up call. It highlights a fundamental tension between London’s historical role as a hub for mature, stable, dividend-paying companies and the needs of a new generation of high-growth, innovative tech firms. While the UK remains a world leader in attracting early-stage venture capital, it is clearly struggling to retain these companies as they mature and seek public capital.

The path forward requires a coordinated effort from government, regulators, and the investment community. It is not just about competing with New York or Frankfurt; it is about reinventing the LSE to be a more dynamic, liquid, and founder-friendly market. The future of the UK’s financial services sector, and its ability to remain a global fintech leader, may well depend on whether it can successfully adapt its capital markets to the demands of the 21st century.