The UK financial services must evolve to stave off growing competition from rival global finance centres. A new report published today urged government and financial regulators to deliver on a swathe of new financial services reforms to ensure the UK financial centre remains best-in-class.   

The second edition of the State of the Sector report – developed in partnership between HM Treasury and the City of London Corporation – examines the sector’s performance over the last year using 40 metrics to highlight key developments required to boost growth.   

Key findings from the State of the Sector report include:    

• The UK attracted the highest amount of FPS foreign direct investment (FDI) in Europe in 2022. More than £2bn was invested in financial and professional services firms – creating almost 15,000 jobs.  
• However, London Stock Exchange’s (LSE’s) trading activity dropped from a global market capitalisation share of 7% in 2018 to 5% in 2022. 
• More positively, the UK’s financial services businesses secured higher venture capital investment (£32 billion) than Singapore, Germany and France, combined.  
• The UK is Europe’s leading fintech ecosystem with 3,200 fintech firm headquarters.  
• In 2022, greentech firms in the UK raised £9.2bn in investment – double the amount raised in France, Germany, Hong Kong, Japan, and Singapore, combined.   
• The UK has retained its position as the world’s largest centre for cross-border banking. More than £4.4tn, or 15.5% of the outstanding value of international bank lending as of Q4 2022, was owed to banks in the UK. But in 2022 the UK lost market share in both international lending and borrowing, -0.9% and -1.5%, respectively, but remains the largest international banking centre by volume. 
• At the end of 2021, asset managers in the UK managed more than £11.6tn on behalf of retail and institutional clients. 

The Policy Chairman of the City of London Corporation, Chris Hayward, said: 

“The UK financial services sector is a key driver of growth supporting the UK’s economy through tough times. Amidst these challenges, the sector remained resilient with the UK retaining its fintech crown. 

“However, in a challenging global economic environment, and with increased competition from other financial centres, we need to collectively ensure its long-term success.  

“We need to put our shoulder to the wheel by implementing recent Financial Conduct Authority (FCA) listing reforms as well acting on Solvency II. Delivery of these reforms will be essential to drive future growth.”  

Extensive industry engagement also pointed to opportunities for the UK in capital market reforms, the newly signed Mansion House Compact to boost investment in fast growing UK companies, digitalising the finance industry and ensuring the UK has a sufficiently skilled workforce.  

The report also highlights a number of other opportunities that will be key for the continued competitiveness of UK’s financial services. These include:  

• Making the UK a more attractive location for listing and for investment funds to domicile, while improving UK growth companies’ access to UK investor capital. 
• Ensuring the UK’s regulatory framework is tailored to both domestic and market needs, such as Solvency II, alongside delivering on FCA and PRA competitiveness objectives and increasing the speed of FCA authorisation turnaround times.  
• Strengthening global market access in high-growth markets through Free Trade Agreements (FTA) and deepening the EU-UK business relationship and finalising the UK-Switzerland MRA. 
• Driving effective adoption of new technology and approaches, including tokenisation and digital IDs, while reinforcing cyber- security and resilience. 
• Ensuring the appetite for green investment in the UK can be met, aligning sustainable finance regulations with international standards, and positioning the UK as a global leader in transition finance, voluntary carbon markets, and green insurance. 
• Improving tech and digital skills, reskilling UK talent and adopting new ways of working, and ensuring companies can access international talent. 
• As an overarching theme, firms highlighted the need for a clear long-term vision for the future of FPS in the UK. To give confidence and certainty, the City of London Corporation’s initiative Finance for Growth: a Roadmap will outline its key recommendations this Autumn. Ensuring the UK FPS sector is best-in-class internationally and able to contribute positively to the UK economy and global growth for decades to come. 

Economic Secretary to the Treasury and City Minister, Andrew Griffith, said: 

“2023 is proving to be a banner year for the financial services reform.

“Just last month, we successfully passed the Financial Services and Markets Act into law, setting the stage for growth and dynamism.

“This, coupled with the good progress being made in delivering the Chancellor's ambitious Mansion House Reforms, will unlock billions of pounds of investment in the finance sector to help grow the economy.” 

 ENDS  

 Notes to editors  

 The State of the Sector report can be read here: https://www.theglobalcity.uk/resources/state-of-the-sector-2023 

Please find further information on The Mansion House Compact and the FAQ’s here: 
http://www.theglobalcity.uk/resources/mansion-house-compact. 

 The City of London Corporation is the governing body of the Square Mile dedicated to a vibrant and thriving City, supporting a diverse and sustainable London within a globally-successful UK. www.cityoflondon.gov.uk