New York replaced London as the world’s leading financial center for the first time, after the City was rocked by a series of scandals and questions over the U.K.’s place in the European Union.

New York holds the top spot in the latest Global Financial Centres Index with a “shaky, statistically insignificant” two- point lead, according to Michael Mainelli, chairman of Z/Yen Group Ltd., which compiles the index. Competition is heating up, with Hong Kong and Singapore, the two leading Asian centers, narrowing the gap between themselves and the top two to fewer than 30 points on a scale of 1,000, the index shows.

Scandals including banks abusing their clients by selling unneeded insurance, manipulation of financial benchmarks and trading losses, have combined to damage the City’s standing, just as plans for a referendum on EU membership cast doubt on the terms of its access to that market. While New York has challenged London for the podium since the inception of the index, a seven-point rise in its rating gained it the top spot after the U.K. capital suffered a 10-point decline, the largest of any center in the top 50.

“London needs a reputation that everyone who comes will be treated fairly and can compete fairly,” according to Mainelli. “Without the large domestic economies behind New York and Hong Kong, London needs to act more like a Singaporean city state or have the backing of a European Union domestic economy.”

The index, which is updated every six months and is in its 15th edition, is compiled from replies to an online survey. It also uses external gauges including rankings for specific areas such as telecommunications. The index, which was first published in 2007, takes into account five broad areas including the business environment, finance, infrastructure, human capital and reputation.

Sustainable Industry

The U.K. government “is determined to build a banking sector that boosts the economy and supports consumers and businesses,” the Treasury said in a statement. “It is creating a framework that promotes a responsible and sustainable financial services industry, tackling the issues of competition and risk in the banking sector.”

London mayor Boris Johnson made a six-day visit to China in October at the same time that Chancellor George Osborne headed a trade mission to the world’s second-largest economy. The U.K. government is aiming for London to become the leading center for offshore trading of the Chinese yuan and securities in that currency, and also wants to encourage the growth of Islamic finance.

The authorities will have their work cut out to make good on those ambitions, according to London-based Z/Yen. The U.K.’s immigration debate and attempts to hold down the number of migrants have made the U.K. appear “unwelcoming” to foreign workers and visitors, according to Z/Yen.

Regulation Growth

London has also suffered because the U.K.’s place in the EU isn’t certain and because it isn’t clear that Scotland will remain in the Union, according to the research firm. Tax predictability has also become an issue, the report said.

Added to that, the regulators that failed to properly supervise banks and other market participants are extending their reach and becoming more costly and more conservative.

“Whilst financial services employment is increasing in London, there is some evidence that jobs growth is in regulatory and compliance,” according to the report.

Asian Rankings

New centers are catching up with the four leaders, reducing the distance between the first and the 10th to 75 points from 117 three years ago, amid a shakeout in the Asian rankings. Leading centers such as Tokyo, Seoul and Shenzen are doing “significantly better’ than weaker ones such as Kuala Lumpur, Manila, Jakarta and Mumbai, according to the report.

In the Middle East, Qatar is the leading center, followed by Dubai, while Riyadh has gained 16 places and Bahrain 12. Europe is “in turmoil,” with 23 out of 27 centers declining in rank and Copenhagen, Edinburgh, Dublin, Madrid and Rome suffering “significant falls,” according to the report. Athens is in last place, 82 points behind Reykjavik, which is second to last.

More than 3,000 finance professionals responded to the survey with 25,441 assessments of the various centers in the 24 months to December last year, according to Z/Yen.