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The UK is both the leading financial services centre and the single most internationally focused financial marketplace in the world. The sector directly employs 3.9% of the UK workforce and indirectly supports a further 3.5% engaged in allied professional services; this amounts to over two million people, generating £175 million of gross value added to the UK economy.

In 2011 the sector is estimated to have generated 12% of UK GDP, exceeding all other sectors. Of the 950+ foreign companies authorised to conduct financial business in the UK, over 40% are US owned and almost a third European owned. An unrivalled concentration of capital and capabilities means that more overseas financial institutions and investors choose to do business in and with the UK than any other country in the world.

The City of London

Straddling the world’s time zones between Asia and America, London’s breadth of international financial dealing is unique, within a culturally diverse centre where international issues and international markets dominate.

Generating a £35.7 billion trade surplus to the UK economy, London is home to over 14,000 financial services businesses. Banks, brokers, securities firms and insurers from around the world provide a massive pool of financial liquidity and innovative expertise, developing financial products and technologies to enhance opportunities for both investment growth and financial risk management. End customers range from governments and multinationals to smaller businesses and individual consumers.

There are over 335,500 people employed in financial services and a further 306,000 in related professions based in London; most are in the City, a third in Canary Wharf and a smaller number are based in the West End. There is a high level of academic and professional expertise; the City also counts 25% of the UK’s software professionals among its highly skilled and diverse workforce.

A quarter of London’s workforce was born overseas, representing 90 different countries and 300 languages while 97% of UN member countries have an embassy or high commission in London. This demonstrates that a presence in the UK is regarded as essential for companies seeking to grow their business and international standing outside their domestic markets. London is also home to the UK’s financial policy makers and regulators, which play a leading role in shaping global financial regulation and market supervision.

Despite the periodic downturns and upheavals, London’s unique concentration of capital and capabilities has enabled it to maintain global competitiveness in the three major areas of banking, investment management and insurance.

Banking

The UK has one of the most competitive, efficient and secure domestic banking systems in the world. Banking represents about 50% of UK based financial services by GDP, employment and tax revenue. Additionally, some 241 foreign-owned banks have offices, branches or headquarters located in London, managing over half of UK banking sector assets worth about £8,000 billion mainly on behalf of non-UK customers.

As Europe’s largest international banking centre, about half of European investment banking activity is conducted in London. The UK is the largest source of cross-border bank lending, with 19% of the world total in 2010.

London is also the world’s leading western centre for Islamic finance, with five fully Sharia-compliant firms and over 20 banks supplying Islamic financial services. Expertise includes fund management, international law, a secondary market in Sukuk and in the growing area of Islamic mortgage business.

Investment management

The UK is the world’s largest asset management centre with £4.1 trillion under management; most of this activity takes place in London, which is also Europe’s biggest centre for the management of hedge funds and sovereign wealth funds. London is home to one of the world’s largest pension sectors, well ahead of other European countries and with a high ratio of domestic pension assets to GDP. About two-thirds of total assets under management represent institutional, corporate pension fund and insurance mandates; the balance represents retail assets (such as ISAs and unit trusts) and private client wealth.

London is Europe’s leading private equity centre, investing over £150 billion in around 30,000 companies worldwide over the past 20 years. UK companies receiving private equity provide employment for around three million people. Around two-thirds represent savings of UK citizens through pensions, life assurance policies, authorised investment funds and other funds such as private equity.

European hedge fund assets managed out of the UK equal about 80% of the market; this is done predominantly from London. With an additional 19% share of the global hedge fund industry and one of the major onshore and offshore centres for private wealth management, London takes a major role in this sector.

Insurance

The UK insurance industry is the third largest in the world and the largest in Europe. It is a vital part of the UK economy, managing investments amounting to 26% of the UK’s total net worth and contributing £10.4 billion in taxes to the government. Employing around 290,000 people in the UK alone, the insurance industry is also one of this country’s major exporters, with 28% of its net premium income coming from overseas business. London is the world’s largest international insurance market, generating £32 billion gross premium income. It is the major skill centre for reinsurance and the global market leader in marine insurance.

Exchanges and trading activities

Foreign exchange
Entirely screen and phone-based, the London foreign exchange market is the largest in the world, with a daily turnover of $1.9 trillion and 37% of the global market, more than New York and Tokyo combined.

The London Stock Exchange (LSE)
The LSE is one of the world’s major financial markets, primarily trading in a wide range of UK and international bonds and equities. The Main Market is regarded by investors and companies as the world’s most prestigious listing and trading environment. There are three others; the Alternative Investment Market for smaller businesses, the Professional Securities Market for listed debt and depository receipt securities, and the Specialist Fund Market dedicated to specialised investment entities.

The LSE has 604 foreign listed companies; this is more than any other exchange. Some 19% of the global foreign equity market is traded in London. Also one of the leading locations for raising capital, it handled 6% of global issues in 2009 and 7% of initial public offerings (IPOs). 70% of global Eurobond turnover is traded in London.

London International Financial Futures Exchange (Liffe)
Liffe is London’s primary derivatives exchange. Financial derivatives traded include futures and options on shares. Traded commodity derivatives include futures and options on physical products, such as barley, coffee and wheat. Annually, $1.29 billion of contracts are traded on Liffe.

Derivatives contracts are financial instruments which are constructed so that their price movement is related to a specific underlying asset. They tend to be used either for speculative or hedging (protective) purposes. London is the largest global market for interest-rate derivatives with 46% of global turnover; it is also the second largest centre for exchange-traded derivatives.

IntercontinentalExchange (ICE)
The IntercontinentalExchange operates exchanges, trading platforms and clearing houses in major financial centres including London; it serves the global markets for agricultural, credit, currency, emissions, energy and equity index markets. ICE Futures Europe is based in London, where it trades half of the world’s crude and refined oil futures. In partnership with the European Climate Exchange (ECX), ICE Futures Europe is the leading electronic exchange for global energy markets. London has a 95% share of the EU Emissions trading scheme.

London Metal Exchange (LME)
This market provides a forum for trading futures contracts for non-ferrous metals, steel and plastics. As a result of this trading, daily prices are ‘discovered’ and published by the Exchange, forming the basis of price negotiations for the physical sale or purchase of metals, steel or plastics worldwide. In 2011, it achieved 120.3 million contracts, with average daily turnover of $46 billion. The LME is a global market with an international membership and with more than 95% of its business coming from overseas. Trading is conducted electronically, by phone, and through short ‘open outcry’ ring-trading sessions where members can conduct business face to face. The LME is the biggest non-ferrous metals exchange in the world.

London is the world’s largest bullion market for gold and gold lending, and with 15% of global trade it is also the largest centre for commodities trading.

Lloyd’s of London
Lloyd’s of London is an insurance market enabling insurance brokers to obtain cover for major risks, for example marine, aviation, professional indemnity, catastrophe and motor insurance. Over 90% of leading UK and US based companies are insured through Lloyd’s; business comes from over 200 countries, including 44% from North America. Although it provides some insurance products suitable for the general public (motor, household and travel), Lloyd’s insurers deal only with authorised insurance brokers. Lloyd’s market is comprised of over 50 managing agents running 80 syndicates that provide the specialist underwriting skills and capital to ensure that claims are met.

Clearing houses
Clearing houses ensure that once securities have been traded, assets are transferred between buyers and sellers smoothly and efficiently. This includes trade settlement, collecting and maintaining money held on account, regulating delivery and reporting trading data. Clearing houses also act as third parties to derivatives contracts, acting as a buyer to every clearing member seller and as a seller to every clearing member buyer.

LCH.Clearnet Group
LCH.Clearnet is the leading independent central counterparty clearing house in Europe, serving major international exchanges and platforms, such as the LSE and Liffe.

Euroclear (CREST)
Euroclear facilitates the clearing and settlement of many international bonds, as well as owning and operating CREST, which is the settlement system used by the LSE for all its transactions.

Clearstream
Clearstream provides similar facilities to CREST on behalf of the Deutsche Börse exachange.

Professional and support services

The UK has a wide range of vital professional services underpinning international financial activities and aided by the UK’s transparent, flexible and predictable legal system. London is a major centre for international legal, accounting, dispute resolution and maritime services, and is home to four dominant accounting firms, three of the world’s leading legal companies and over 200 international law firms.

London is also a leading centre for other services and product expertise, including high quality financial services education offered by academic institutions and professional examining bodies like the Chartered Institute for Securities & Investment.

About the Author

  • About Sian Lloyd: Sian Lloyd FCSI is a senior adviser at the Chartered Institute for Securities & Investment.

Sian Lloyd

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