EY UK financial services attractiveness survey 2016

UK fi nancial services attractiveness survey2016

01 | EY UK fi nancial services attractiveness survey, September 2016

4077 EY_FS Attractiveness Forecast.indd 1 14/09/2016 12:42

EY’s attractiveness surveys are widely recognised by our clients, the media and major public stakeholders as a key source of insight on Foreign Direct Investment (FDI). Examining the attractiveness of a particular region or country as an investment destination, the surveys are designed to help businesses to make investment decisions and governments to remove barriers to future growth. A two-step methodology analyses both the reality and perception of FDI in the respective country or region. Findings are based on the views of representative panels of international and local opinion leaders and decision-makers.

The UK attractiveness report is part of the EY Economics for Business Programme, which provides knowledge, analysis and insight to help business understand the economic environments in which they operate.


02IntroductionOmar Ali, Managing Partner, UK Financial Services, shares his view on the prospects for foreign direct investment (FDI) in the sector in the wake of the EU referendum

04The investment landscapeA review of UK financial services FDI in 2015

04 UK financial services FDI — 2015 in review

04 How UK financial services FDI compares with the rest of Europe

04 Where is the investment coming from?

06 What was being invested in?

06 FS FDI and job creation

07What makes the UK attractive to investors — and what are we betting on?Some of the key findings of the EY UK FS attractiveness survey 2016

07 The investors’ perception

10 FinTech to the rescue?

11 The tax question

11 Skills and labour

13London and the regionsA look at regional variations in UK FS FDI

13 All eyes on London

13 The regions are gaining ground

15ConclusionHow FS investors see the attractiveness of the UK in the wake of the vote in favour of Brexit

16 Methodology

17 Contacts and acknowledgements

Contents

EY UK financial services attractiveness survey, September 2016 | 01


The UK has long been a world leader in financial services (FS) and the sector is the most significant contributor to the UK economy.1 As the result of the referendum plays through, it is clear that this country’s financial services sector will face challenges and there will be tough decisions for Government and policy-makers to take about the future of our country’s economy and the role we want financial services to play.

Understanding how attractive the UK is compared to other financial services centres across the world, and what proportion of the total investment into the UK the sector is attracting, is going to be really important. We don’t usually publish an FS edition of our UK attractiveness data but for now, and the foreseeable future, we have taken the decision to share what our study of foreign direct investment (FDI) reveals about the basis for the UK’s success as a global hub for FS. While this survey was completed before the outcome of the referendum was known, understanding what investors value remains essential.

At the time of the European Union (EU) referendum, the UK was attracting more foreign investment into financial services than at any time during the last decade. In 2015, the UK attracted one third of all FS FDI projects in Europe1, reflecting investors’ optimism about the UK’s strong domestic market, its commitment to maintaining an environment where businesses can grow and develop, the increased contribution of the UK’s regions to the sector and a burgeoning FinTech industry.

The outcome of the referendum triggered economic and market volatility, but the volatility has, for now, been relatively short-lived. The hard work undertaken by our FS regulators and Firms since the crisis meant the sector was well placed to respond, and that, today, the fundamentals of the UK financial sector remain firm. It is well capitalised, its systems are resilient; the regulatory structure is well tested and continues to be held in high regard across the globe.

In theory, then, there is no reason why the UK FS industry can’t continue to prosper outside the EU. But our study shows that, in reality, a lot will depend on the terms of the UK’s new relationship with Europe and on the greater world stage.

Even before the results of the Brexit vote were known, investors were less optimistic about the future attractiveness of our country than they had been in 2015, with only 31% of investors thinking that the UK’s attractiveness would improve.2 At the heart of their concerns was continued access to the single European market. Almost three quarters (72%) told us that access to the single market was important for them.

Against the background of ongoing political and economic uncertainty, it seems clear that the confidence of FS companies and investors will be shaped by negotiations around the UK’s future access to the Single Market. FinTech, skills, labour and tax are also important factors to investors when looking at the attractiveness of a location. But depending on the outcome of the

Introduction

Omar AliManaging PartnerUK Financial Services

“ Understanding investors’ views is going to be even more critical as we look to make the right decisions for the UK’s financial services industry.”

1. Key facts about UK financial and related professional services, The City UK, March 20162. EY Global Investment Monitor, 2016

02 | EY UK financial services attractiveness survey, August 2016


negotiations, the level of foreign direct investment in UK FS could decrease by 25%–35% in the next year.

Irrespective of their own personal politics, leaders across the UK’s major industries will be assessing their businesses’ and industries’ competitive positioning in this new landscape. It is clear that there’s a lot worth fi ghting for. I believe that if we can remember all that we have learned through the fi nancial crisis, listen to investors and third parties, and speak with one strong voice in the market and at the negotiating table, then the world will see why fi nancial institutions and investors can’t afford not to be in the UK.

Omar AliManaging Partner,Financial ServicesEY UK

Looking forward

It’s clear from what investors told us that certain issues are going to be central to the ongoing success of the UK fi nancial services industry on the world stage:

Access to the single market — Almost three quarters (72%) of FS companies said that access to the single market was important for them, and 44% agreed it was “very important.”

Perception of foreign investors — 43% said that, if the UK were to leave the EU but retain access to the single market on slightly less favourable terms, it would make the country less attractive as a destination for investment.

Regulatory uncertainty — During the negotiation period there will, of course, be uncertainty for fi nancial services around the extent of regulatory change we will actually see. There is a commonly held belief that very little will change with regard to the regulatory agenda, but the sooner we have certainty on that, the better.

Innovation and disruption — 73% of all investors surveyed across UK industry sectors agreed that the FinTech sector makes the UK more attractive as an investment destination. In the UK, fi nancial services has a long history of adaptability and innovation, and this has historically been central to our economy’s success. We had the fi rst exchanges and central bank that gave merchants access to fi nance. We printed the fi rst double-sided banknote, launched the fi rst mass-market current account, overdraft and credit vouchers, opened the fi rst ATM, telephone banking, and the fi rst internet banking service. We know from our own research for HM Treasury that the UK is leading the way in FinTech, but that could change. Our market-leading position needs to be safeguarded.

EY UK fi nancial services attractiveness survey, September 2016 | 03


The investment landscape

The UK continues to lead Europe in attracting financial services FDIUK financial services FDI — 2015 in review

In 2015, as Europe continued its climb out of the recession sparked by the global financial crisis of 2008, investors looked to the UK as the best bet for growth in the financial services sector.

There were 277 projects undertaken in Europe in 2015 and the UK recorded 94 of them — its highest ever number since EY started monitoring FDI (see Figure 1). To put this in further context, total FS projects into Europe have increased by 81 since a low point in 2012, and the UK alone accounts for 57 (or 70%) of the increase. These figures are even more impressive when you consider the slight decline in FDI in the European financial services sector as a whole over the last 12 months.

How UK financial services FDI compares with the rest of Europe

The UK leads the rest of Europe in securing FS FDI, and has done so every year over the last decade. As the chart below demonstrates, the UK led Germany and France by some distance in attracting FS FDI in 2015, a pattern that has increased dramatically since 2012. While investors have nearly doubled their stake in all three countries’ FS sectors since 2013, the number of UK projects being funded (94) dwarves those of its main European competitors.

In fact, the UK has seen its market share grow over the last three years, from a decade-low point in 2012 of 18.9% to a decade high in 2015 of 33.9% (see Figure 2).

Question: FS destination Sample: 444 (total), 58 (FS)

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Figure 1: Comparison of FDI, 2006–2015

Figure 2: Market share of FS projects, 2006–2015

Where is the investment coming from?

In 2015, the US remained the largest player in European FS FDI, reflecting the European trends. Investors from the US supported 52 European projects, representing 19% of all FS FDI. The US was the single biggest contributor to FS FDI flowing into the UK — and across all FDI in the country, accounting for 26% of its total, even as its share of FS FDI has fallen.

The UK secured 10 projects from China, a number that represented an increase of 25% over the previous year, and ranked China as the second largest investor into the UK FS sector.

An examination of the origins of UK FS FDI by global region reveals substantial changes over the past decade. At its 2007 peak, North America was the most important region, contributing 38% of all UK FS FDI, with Asia at the other end of the scale, representing just 11%.

By 2015, however, the UK’s origins of investment in the sector by region changed to become similar to those of Europe as a whole, while the EEA has become the most important regional contributor.

Source: EY Global Investment Monitor, 2016


04 | EY UK financial services attractiveness survey, September 2016


The investment landscape

Financial services

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Question: What type of investment project? Sample: 444 (total), 58 (FS)

What was being invested in?

The majority of UK FS investments in 2015 were recorded in the area of sales and marketing (mirroring Europe in general), with 73 UK FS FDI projects accounting for 33% of the European total. Headquarters (HQ) investments ranked second — a category in which the UK secured 13 investments, accounting for 57% of all FS HQ projects into Europe in 2015, up from 38% in 2014.

Of the UK’s total of 94 FS project successes in 2015, 74 went to financial intermediation and 20 to insurance and pensions. The UK secured 37% of all European financial intermediation FDI in 2015, compared to 25% of European insurance and pensions. Meanwhile, the split between new and expansion projects in FS FDI for the UK was the same for all categories of investment, with 71% secured by the UK being classified as “new investments” as opposed to expansions.

According to our UK attractiveness investor survey, investment planned for the next year will be dedicated to sales and marketing

office (54%), back office operations (20%) and training centres (6%), much more focus than total investment across sectors (see Figure 3).

FS FDI and job creation

The scale of FS FDI across Europe had a real effect in terms of job creation. New employment in 2015 was 8,138 — an increase of 39% from 2014 (employment of 5,844) and the highest figure since 2007. In the UK, however, the 2,199 jobs created in FS were marginally down on the 2,215 of the previous year, and made up 27% of the European total.

European financial services employment as a share of total FDI employment averaged 3.4% over the last decade, and in 2015 the market share was above trend, even though FS projects tend to be smaller than those for other sector FDI.

Source: EY’s UK attractiveness survey 2016Sample: 444 (Total), 58 (FS)

Figure 3: A focused approach to areas of investmentQuestion: What type of investment project?



What makes the UK attractive to investors — and what are we betting on?

43% cited banking, insurance, and wealth and asset management as the sectors that will drive the UK’s growth. 30% of investors thought the sector will drive European growth.

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I n f o r m a t i o n a n d c o m m u n i c a t i o n t e c h n o l o g i e s , I T

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Question: In your opinion, which business sectors will drive the UK’s growth in the coming years?

Sample: 444 (total)

Investors see fi nancial services as the main driver of growth in the UK

Figure 4: Financial services are seen as a key sector for growth in the UKQuestion: In your opinion, which business sectors will drive the UK’s growth in the coming years?

The investors’ perception

One interesting insight into the importance of the UK fi nancial services sector comes from EY’s annual attractiveness survey, which takes a snapshot of our investors’ perceptions regarding the UK as a location for FDI in general, and for FS projects in particular. The survey found that investors in general see FS as the primary driver of growth in the UK, and a more powerful economic force than it is in the rest of Europe.

Some 43% cited banking, insurance, and wealth and asset management as the sectors that will drive UK’s growth over the next few years — signifi cantly more than the 30% who believed information and communications technology (ICT) will drive growth or the 19% who cited B2B services (see Figure 4).

Notably, only 30% of those same investors thought that FS will drive European growth. This perception matches the reality of investment fl ows that we’ve already outlined, as FS investment projects maintained their long-term revival both in Europe and in the UK, but with UK FS FDI increasing in 2015 while those into Europe as a whole fell back.

Source: EY’s UK attractiveness survey 2016Sample: 444 (Total)

When we consider the attributes that made the UK attractive to investors just a few months ago, it is clear that, in the wake of the Brexit vote, the fi nancial services sector faces some core challenges, while also having a powerful set of attributes to help meet those challenges.



Quality of life, diversity, culture and language

Education in trade and academic

Stability of social climate

Telecommunication infrastructure

Local labour skills level

Stability and transparency of political, legal and regulatory environment

Access to European market

Entrepreneurial culture, support for entrepreneurs

UK’s domestic market

Transport and logistic infrastructure

Supportive policy environment that encourages sustainability investments

Flex ibility of labour legislation

Corporate tax ation

Labour costs

Availability and cost of real estate

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Question: For each criterion, I’d like you to tell me if, from the point of view of your company, the UK is very, fairly, little or not at all attractive as a foreign direct investment destination: UK’s domestic market

Sample: 444 (total), 58 (FS)

The majority of investors from FS companies (80%) were keen to cite the appeal of access to the European market — an obvious area of uncertainty now that UK voters have opted to leave the EU. However, almost the same percentage of investors (78%) cited access to the UK domestic market as appealing.

When asked what makes the UK attractive for investing, 84% of respondents highlighted “quality of life, diversity, culture and language” as their top motivating factor (see Figure 5). Will a Brexit vote, with its potential to restrict free movement of labour into the UK, change investor confidence? Investors also declared their admiration for the UK, both as a stable place to do business and for the transparency of its political, legal and regulatory environment. It is possible that admiration will be dented due to the recent political upheavals.

Other important elements of investor confidence should be less affected by Brexit, however, including the UK’s pedigree when it comes to academic and trade education, the strong entrepreneurial culture, and the transport and logistics infrastructure. Though quite how supportive the policy environment to encourage the sustainability of investments will be, remains to be seen, if the history of the 2008 economic downturn is anything to go by.

Responses concerning telecommunications infrastructure uncovered one of the more discordant views of FS investors: only 69% said it was an attractive attribute, compared to the overall figure of 84%. And while 69% is still a high percentage, what stood out more is that 29% of FS investors found it ‘not attractive’, almost double compared to the overall 15%.

Figure 5: What makes the UK attractive to financial services investors?Question: For each criterion, I’d like you to tell me if, from the point of view of your company, the UK is very, fairly, little or not at all attractive as a foreign direct investment destination




What makes the UK attractive to investors — and what are we betting on?

FinTech to the rescue?

One of the most striking fi ndings from our 2016 UK Attractiveness survey — and one with major implications for FS FDI — is the rising status of the UK in general, and London in particular, as a centre for FinTech development, innovation and investment. This strength in FinTech refl ects a range of factors that have come together in theUK to create an unsurpassed environment for FinTech to fl ourish.

Asked which three cities are the most likely to produce the next Google, investors saw London as running neck-and-neck with San Francisco and Silicon Valley, followed by New York (see Figure 6). While more investors mentioned Silicon Valley in fi rst place than London, the UK capital came top on overall mentions — meaning more investors ranked it in their top three globally for innovative capacity. Cambridge was defi nitely an outlier in the cities ranking, with 11% of FS investors seeing its potential as a technological hub — especially when you compare it to the overall 2% of all investors surveyed.

When investors were asked whether the UK’s thriving and fast-growing FinTech sector makes the country more attractive as an investment destination, 73% across all industries replied “yes” — a fi gure that rose to 80% among FS investors. This underlines the extent to which FinTech innovation stands to benefi t, not just from fi nancial services companies, but from all types of business, by driving the development and availability of more sophisticated and cost-effective fi nancial services.

The factors that make the UK such an encouraging environment for FinTech have been highlighted in two recent EY research studies. Our 2016 international benchmarking report3 commissioned by HM Treasury — UK FinTech: On the cutting edge — found that the UK has the strongest FinTech ecosystem of any of seven major global FinTech centres. Any FinTech ecosystem is shaped by four key attributes — talent, capital, policy and demand — and the UK strikes the best balance across all four, ahead of California and New York.

3. UK FinTech: On the cutting edge, Executive Summary

SS a n FF rr a n c ia n c i ss c o /S i l iS i l i c o n V a l l ee yy

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Question: Which three cities in the world offer the chance of producing the nex t G oogle?Sample: 444 (total), 58 (FS)

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9 %

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Figure 6: Which three cities in the world offer the best chance of producing the next Google?

Source: EY’s UK attractiveness survey 2016Sample: 58 (FS)

10 | EY UK fi nancial services attractiveness survey, September 2016


A particular competitive advantage for the UK is its responsive and highly practicable FinTech policy environment, characterised by supportive regulatory initiatives, tax incentives, and government programmes to promote competition and innovation in areas like P2P lending and crowdsourcing. These helped the UK FinTech sector to generate revenues of around £6.6bn in 2015 and to employ a workforce of about 61,000, second globally only to California’s 74,000.4

A further driver of its dynamism is the consumer adoption of FinTech tools and services in the UK in general, and London in particular. The EY FinTech Adoption Index5 finds that 14.3% of digitally active consumers in the UK had used at least two FinTech products in the six months prior to the survey field work (summer 2015), while for London, the number rises to 25.1%. This underlines the UK’s position as a valuable test-bed for FinTech innovation.

All this has helped the UK to create an environment where both FinTech developers and traditional FS companies can blend mainstream financial services knowledge and expertise with growing skills and capabilities in innovating around the digital user experience. And the growing competitive challenge from the UK’s burgeoning FinTech sector is having the effect of accelerating innovation by traditional players — triggering a virtuous circle of better user experience at an ever more affordable cost.

So, given the successes up to this point, how might Brexit affect the UK’s FinTech sector? Policy and regulation (not least “passporting”) is one key concern. The UK must continue to update and fine-tune its policy environment for FinTech innovation to keep pace with developments and stay ahead of the pack in other parts of the world. Continued access to the best talent is also crucial in a technology sector where expertise is at a premium and where professionals are highly mobile and take global relocation as part of their career path.

The tax question

Corporate tax is a perennial concern for investors — pre-Brexit, just 57% considered it was an attribute that made the UK attractive. That said, for investors looking to maximise FDI, the UK remains one of the most attractive countries in the world, tax-wise. Take corporation tax, which has been halved over the last decade and soon will be 50% lower than in the US, France, Germany or Japan.

At the same time, the UK is an excellent location to house an FS holding company, as there are no taxes on dividends received or paid, nor on overseas subsidiaries, though banks now have to pay a tax on profits.

How investors will consider the UK’s corporate tax structure following the Brexit vote is unclear. Financial services, more than anything, is a people business and it depends on attracting the right levels of skill and talent to be competitive. The UK wants to remain at the heart of the FS world, and to do so, it needs the smartest minds to remain here. Talent also contributes a lot to the local economy. At the moment the UK continues to offer a good tax environment for this calibre of expertise. Ultimately, what both FS companies and the people who guide them crave is stability. They want certainty that the tax regime won’t change dramatically, confidence in the longevity of the rules and to be sure of a stable political environment.

Skills and labour

Eighty percent of investors believe that local labour skills are a key attribute of UK FS attractiveness (see Figure 6, page 9), making the concentration of a diverse and highly skilled workforce one of the UK’s key competitive advantages. The concentration of FS firms in London makes it an attractive place for talented individuals from around the globe to build and develop a career. London also has the quality of housing, education and leisure that allows people to make it a long-term residential choice.

The degree to which the UK remains attractive for senior talent is bound to depend on future negotiations over free movement of labour between the UK and the rest of the EU. Given that respondents felt that the ease of the UK visa system was already declining (14%), they will be interested in both what is agreed in negotiations and how it is implemented in practice.

On a regional level, the FS sector is getting stronger and, as investors indicated that availability and skills of local workforce is the most important attribute for regional investment (28%), continuing to build skills in cities like Manchester, Leeds and Edinburgh will broaden the strength of the UK’s footprint (see Figure 9, page 14). Investors and firms will also be watching Edinburgh closely, as Scotland explores different avenues to remain in the EU.

Flexibility of UK FS labour legislation (53%) and labour costs (42%) are less attractive to investors (see Figure 5, page 9); however, the employment framework may change depending on the route the UK takes. The UK has a number of legislative provisions that have their source in EU law (e.g., the Human Rights Act 1998). Prominent Leave campaigners have suggested this legislation should be repealed and replaced with a new British Bill of Rights, which could have different provisions relating to labour legislation and, consequently, costs. Additionally, firms are watching pending UK Remuneration Code consultation on the incorporation of the requirements of the European Banking Authority (EBA) guidelines closely, as there is significant speculation that the current “bonus cap” will be relaxed under an independent UK regularity regime. As with all such matters, whether or not these measures are pursued will ultimately depend upon the eventual settlement between the UK and EU and the priorities of the Government.

The UK FinTech sector generated revenues of around £6.6b in 2015.4

4. UK FinTech: On the cutting edge, Executive Summary5. EY FinTech Adoption Index



London and the regions

London continues to dominate UK FDI, but the regions are gaining market shareAll eyes on London

London remains the clear and long-standing leader for FS investment in the UK, having secured more than half of all UK FDI projects in the sector in every year during the past decade apart from 2006. In 2015, London secured 56% of UK FS inward investment. The capital is also viewed as the most attractive European centre for FS. More than a third of investors favoured London over the second most popular city, Paris (see Figure 7).

The UK capital also ranked fi rst at a European level when it comes to total FDI projects, with over two and a half times as much FDI as Paris.

The regions are gaining ground

Looking at the UK economy as a whole, the most striking feature of this year’s UK attractiveness survey was the performance of the UK’s regions, with most English regions seeing signifi cant increases in FDI and Scotland enjoying its best year on record (see Figure 8).

With investors voicing solid support for the UK’s agenda to devolve power to a regional level, it seems that devolution has started to work and foreign investors are helping to

re-balance economic activity more evenly across the country. Yet, as the referendum made clear, there is still a lot of work to be done.

As the UK contemplates a post-Brexit future, the development of regional powerhouses will become even more important in offering new opportunities across all sectors for FDI. The so-called M62 northern corridor is one obvious area of strength, as is Scotland. Other areas such as South Wales, the South West and the North East of England would all benefi t from increased regional development.

What do they need to do to attract that investment? Improving the availability of skills in the local workforce and the quality of transportation infrastructure are the two top criteria cited by investors. The quality of education and trade skills, along with a strong telecommunications infrastructure, are also highly valued. Of lower importance, but still noted, is the cost of local labour, while the availability of business partners and suppliers is another consideration (see Figure 9, page 14).

Source: EY’s UK attractiveness survey 2016Sample: 58 (FS)



Figure 8: Breakdown of UK FS FDI by region

L o n d o n

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Figure 7: What are the three most attractive European cities?


Availability and skills of local workforce

Transport infrastructure

Local labour costs

Availability of business partners and suppliers

Telecommunications and technology infrastructure

Cost and availability of real estate locally

Strength of local education, both trade and academic

Strength of business networks locally

Access to regional grants and incentivesfor investment

Local quality of life such as local schools, housing, cultural and sporting events

Support from regional economic advisory bodies

R egional market siz e / access to customers / the presence of its customer base / the access to the market / the purchasing power

of that region

The tax es that are applied for business in that area

Quality of manufacturing

N one. We do not intend to invest in the UK

0 2 0 4 0 6 0%

Question: What are your investment criteria when considering investing in regional locations in the UK? Sample: 444 (total), 58 (FS)

F i n a n c i a l s e r v i c e s T o t a l


Figure 9: What incentivises regional investment in financial services?Question: What are your investment criteria when considering investing in regional locations in the UK?



EY UKFS Attractiveness survey | 15

What happens next?

Even before the Brexit vote, FS investors were pessimistic about future changes in the UK’s attractiveness, with only 30% thinking it would improve over the next three years (see Figure 10).

FS investors were also more critical than their counterparts in other industries about how the UK environment for inward investment has changed over the past year. Only 39% of FS respondents thought it had improved (against 47% overall), and 43% in FS said it hadn’t (compared to 37% overall).

The areas to focus on in order to make the UK more attractive include the fl exibility of the UK’s labour legislation (which only 53% of FS investors regard as attractive) and the cost of labour (42%). The cost of real estate seems to be an especially sore point (it was cited by 35% of investors). Investors also highlight the need to improve the UK’s telecoms infrastructure to maintain its lead in FS FDI.

Ultimately, the extent to which the UK can continue to access the European Single Market weighs heavily in the minds of FS investors. More than 40% told us that the UK would be less attractive for FDI, even if it retained access to the Single Market on slightly less favourable terms than we have at present. The pessimistic sentiment jumps to 68% when they were asked to consider access to the Single Market on signifi cantly less favourable terms.

All these factors, combined with labour costs and corporate taxation, will play an important role in the future in deciding whether to establish or maintain headquartered operations in the UK.

That said, the investor feedback in this EY UK FS attractiveness survey shows the fi nancial services industry in the UK has many attributes that will be helpful as we look to create a successful new way of working outside of the EU.

The fi nancial infrastructure, connectivity to international markets, skilled workforce, optimal time zone, and trusted legal system and regulatory environment are all valued by those taking major investment decisions.

Conclusion

That platform of confi dence has prompted investors to increase their UK FS commitments for three years in a row — making the country the leading FS sector in Europe when it comes to FDI.

London is still a big driver of that success, even as the UK’s regional centres are also on the rise. The growing importance of the capital’s FinTech sector can help it maintain its leading industry position for years to come.

But, all of that said, with open access to EU markets no longer guaranteed, there is no denying that the UK FS faces signifi cant headwinds. To maintain the trust of investors, it will have to answer the diffi cult questions about fi nancial institutions’ continued ability to use the UK as a gateway to Europe and how the UK can maintain and build on its economic potential with the rest of the world.

Figure 10: FS investors are less optimistic about the attractiveness of the sector over the next three yearsQuestion: How do you think UK attractiveness for Foreign Direct Investment will evolve over the next three years?

To maintain the trust of investors, our sector will have to answer the diffi cult questions about fi nancial institutions’ continued ability to use the UK as a gateway to Europe and how the UK can maintain and build on its economic potential with the rest of the world.

W i l l d e c r e a s e

W i l l s t a y t h e s a m eW i l l i m p r o v e C a n ’ t s a y

Financial services

Total

40% 27%3%

30%

36% 44% 16%4%

Question: How do you think UK attractiveness for Foreign Direct Investment will evolve over the nex t three years?Sample: 444 (total), 58 (FS)




Methodology

*Breakdown for FS sample

The UK FS attractiveness survey is part of the EY Economics for Business Programme which provides knowledge, analysis and insight to help businesses understand the economic environments in which they operate. The methodology we use is threefold:

1. Our evaluation of the reality of FDI in Europe is based on the EY Global Investment Monitor (GIM). This database tracks those FDI projects that have resulted in the creation of new facilities and new jobs. By excluding portfolio investments and M&A, it shows the reality of investment in manufacturing and services by foreign companies across the continent. Data is widely available on FDI. An investment in a company is normally included in FDI data if the foreign investor acquires more than 10% of the company’s equity and takes a role in its management. FDI includes equity capital, reinvested earnings and intracompany loans. But our figures also include investments in physical assets, such as plant and equipment. The following categories of investment projects are excluded from GIM:

ggM&A and joint ventures (unless these result in new facilities or new jobs being created)

ggLicense agreements

ggRetail and leisure facilities, hotels and real estate*

ggUtilities (including telecommunications networks, airports, ports and other fixed infrastructure)*

2. The investors’ perception is measured through a survey conducted by the CSA Institute from February to April 2016, via telephone interviews with a representative group of 444 international decision-makers, out of which 221 were investors in the UK.

Our UK financial services sample included 58 respondents, only 22% of them established in the UK. In terms of geographical origin, 57% of them were from Northern America, the rest of the sample including respondents from Western Europe (18%), Asia (16%), Central and Eastern Europe (3%) and Australia (4%).

3. EY analysis: our subject matter experts provided the data analysis and in-depth insight.

Survey respondents broken down by company size*

Survey respondents broken down by role

36% 29 %

35%

< € 150m€ 150m - € 1.5b> € 1.5b

25%

14%

12%

14%

10%

7%

11%

7%

Financial Director

M arketing and Commercial Director

M anaging Director/Senior V P /CO O

Director of Development

Director of Investments

Chairman/P resident/CEO

Office Manager

O thers



Contacts

For more information about fi nancial services and how we can help, please contact us.

Omar AliManaging Partner,Financial ServicesEY UK

E: [email protected]: +44 20 7951 1789

Robert CubbageBanking & Capital Markets LeaderEY UK


Rodney BonnardInsurance LeaderEY UK


Gillian LoftsWealth & Asset Management LeaderEY UK


Thomas BullDirector, FinTech


Angela DawesPeople Advisory ServicesLeader for Financial Services, EMEIAE: [email protected]: +44 20 7951 2760

Mark GregoryChief Economist


Imran GulamhuseinwalaGlobal FinTech Leader


Alison McDowellDirector, People Advisory Services


Jeff SoarTax Leader forFinancial services, UK


Acknowledgements


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EY UK financial services attractiveness survey 2016

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