Speed is of the essence for financial services markets reforms
The financial services sector in the UK is facing increasing competition from other global finance centers, necessitating its evolution to maintain its leading position. In a new report released today, the government and financial regulators are urged to implement a series of reforms to ensure that the UK remains at the forefront of the financial industry.
The State of the Sector report, developed in collaboration between HM Treasury and the City of London Corporation, assesses the sector’s performance over the past year using 40 metrics to identify key areas for growth enhancement.
Important findings from the report include:
- The UK attracted the highest amount of foreign direct investment (FDI) in financial and professional services among European countries in 2022, with over £2 billion invested, leading to the creation of nearly 15,000 jobs.
- However, the trading activity of the London Stock Exchange (LSE) experienced a decline in its global market capitalization share, dropping from 7% in 2018 to 5% in 2022.
- On a positive note, the UK’s financial services businesses received higher venture capital investment (£32 billion) compared to Singapore, Germany, and France combined.
- The UK is recognized as Europe’s leading fintech ecosystem, with 3,200 fintech firms headquartered in the country.
- In 2022, greentech firms in the UK secured £9.2 billion in investments, double the amount raised in France, Germany, Hong Kong, Japan, and Singapore combined.
- The UK continues to hold its position as the largest center for cross-border banking globally, with banks in the UK owed more than £4.4 trillion, accounting for 15.5% of the total value of international bank lending in Q4 2022. However, the UK experienced a decrease in market share in both international lending (-0.9%) and borrowing (-1.5%) in 2022.
- Asset managers in the UK managed over £11.6 trillion on behalf of retail and institutional clients by the end of 2021.
Chris Hayward, the Policy Chairman of the City of London Corporation, emphasized the importance of the UK’s financial services sector as a driver of growth, particularly during challenging economic times. He highlighted the need for collective efforts to ensure its long-term success, including the implementation of recent Financial Conduct Authority (FCA) listing reforms and action on Solvency II.
The report also identifies various opportunities for the UK’s financial services to maintain competitiveness, such as:
- Enhancing the attractiveness of the UK for listings and investment funds while improving access to UK investor capital for growth companies.
- Tailoring the regulatory framework to meet both domestic and market needs, including Solvency II, and focusing on FCA and PRA competitiveness objectives and faster authorization turnaround times.
- Strengthening global market access through Free Trade Agreements (FTA), deepening the EU-UK business relationship, and finalizing the UK-Switzerland MRA.
- Embracing new technologies and approaches, such as tokenization and digital IDs, while prioritizing cybersecurity and resilience.
- Meeting the demand for green investment by aligning sustainable finance regulations with international standards and positioning the UK as a leader in transition finance, voluntary carbon markets, and green insurance.
- Improving tech and digital skills, reskilling the UK workforce, and ensuring access to international talent.
- Firms emphasize the need for a clear long-term vision for the future of the UK’s financial and professional services sector, which will be outlined in the City of London Corporation’s Finance for Growth: a Roadmap initiative later this year.
Andrew Griffith, the Economic Secretary to the Treasury and City Minister, expressed optimism for financial services reform in 2023, highlighting the recent passing of the Financial Services and Markets Act and the progress made in implementing the ambitious Mansion House Reforms. He believes these initiatives will unlock significant investments in the finance sector, contributing to economic growth.
