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Background on the city of London and its financial institutions

Category: Business in Great Britain

In the world of international financial services, London leads

London is a global financial centre and the pre-eminent international financial centre in Europe. It delivers all the products and services necessary to support the financial transactions and business objectives of major FSU companies and organisations. International finance available in London covers all the key fields of banking, insurance, securities, derivatives and fund management. FSU institutions can also draw on the wide-ranging professional expertise found in London on issues such as pension reform and public/private partnerships.

London is also home to more global corporate financial services headquarters than any other European city. Many of the international financial services out of London are provided by well-known American and European investment banks, insurance companies and fund managers.

Overall, financial services represents a crucial component of the UK economy, accounting for more than 5 percent of GDP and generating employment for more than 1 million people. While London is both an international centre and also central to the UK financial services industry, Scotland is an important European financial services centre in its own right, particularly in the provision of banking, fund management, pensions and life insurance.

In New York and Tokyo, the other main financial centres, a large volume of business is sourced from their domestic markets; but London is the truly global player. London’s leading role in the international financial services industry arises from a long history of openness, with relatively easy access to markets and a tradition of welcoming foreign firms, supporting a trading culture which dates back to the time over a century ago when the UK was the dominant world trading country.

That trading culture also favours innovation — which in turn is spurred on by the range and depth of expertise and experience available. London’s leading position is also due to its very high concentration of essential skills: high quality professional and support services, access to world class linguistic skills, and an unparalleled level of professional expertise in the financial services industry. Other factors include:

— A high concentration of firms in one location contributing to economies of scale. Improved flows of information and the concentration of support services all help to reduce costs.

▼ Legal, accounting, actuarial, management consultancy and IT support, with five of the 10 largest law firms in the world being international law firms based in London. Many also have offices in the

FSU, particularly in Moscow.

▼ Substantial physical assets, particularly office accommodation and an efficient telecommunications infrastructure.

▼ The use of English, with businesses also able to access a wide range of other languages, including Russian, from the international community in London.

The UK is renowned for its proportionate approach to regulation, which encourages innovation. This has been further facilitated by the establishment of the Financial Services Authority. The FSA is the single regulator of financial services, the first of its kind in the world and a much-envied model. All these factors have combined to make London the leading player in global financial markets. The figures speak for themselves:

▼ Cross-border bank lending out of London reached $3,092bn in December 2003. Russia was the largest destination for lending in Central and Eastern Europe, with borrowings of over $6bn.

▼ Turnover in foreign equities listed on the London Stock Exchange (LSE) totaled $1,470bn in 2003. The three Russian oil companies listed accounted for trading totalling $23bn, a total that was only exceeded amongst LSE listings from emerging markets by South Korea.

▼ Turnover in the foreign exchange markets in London averaged $753bn a day in April 2004.

London’s role as an international financial centre is evidenced in its leading share of many of these markets, an issue highlighted by Alan Greenspan, Chairman of the US Federal Reserve Board:

“The City of London has a long tradition of leading the world in foreign exchange trading and currently conducts twice the volume of New York despite the fact that the U.S. dollar is the leading traded currency by far in foreign exchange transactions. London is the world’s centre for over the counter derivatives trading — again with double the share of the trading in similar instruments conducted in New York. Moreover, a substantial share of the world’s securities trading is channeled through the City. “London has stayed on top in the provision of financial services despite the emergence of the euro, which some expected would divert a significant share of foreign exchange trading to a single centre on the continent. Although financial sector activity in Frankfurt has increased substantially in the past few years, largely reflecting the growing importance of the euro, trading volumes there are still well below those of London and New York.”

London also offers the most comprehensive range of specialist maritime services in the world, covering shipbroking, legal services, finance, insurance, ship classification, dispute resolution and publishing. The UK is the global leader in marine insurance, with 19 percent of the world market. Indeed, the international insurance market began in London and much of the business there is administered through the Lloyd’s market. Other important maritime organizations include the Baltic Exchange and Lloyd’s Register. Key customers of maritime services include a sizeable international community resident in London, particularly from Greece but also with an increasingly large element from Russia and other FSU countries.

International product expertise in London

There is a wide range of international product expertise in London which IFSL is involved in promoting, including:

▼ Pension reform: Legal advisers, pension providers, fund managers, actuaries and tax and financial consultants based in London have provided advice on the reform of pensions in Russia and Eastern Europe, as well as other regions such as Asia and Latin America. UK expertise is founded on the development of a large UK pension industry with funds managed totaling some L1,000bn.

▼ Privatisation: The UK’s innovation in privatising industries in public ownership has resulted in hundreds of privatisations in more than 100 countries around the world, with global proceeds totalling around $1,100bn. So far, about 30 companies have been privatised in Russia with a market value of over $2bn. International law and accounting firms and investment banks based in the UK have provided input and advice to many privatisations worldwide.

▼ Public/private partnerships (PPP): London is a leading centre of expertise in PPP, with legal and financial advisers, banks and contractors based in London and the UK having developed expertise that can be applied to any situation. This has been largely based on more than 500 signed PFI projects in the UK with a value of Ј24bn. In Russia, the first PPP contract was for buses in St. Petersburg, and municipal officials in Moscow are seeking advice on the development of PPP in the Russian capital.

▼ Private wealth: London’s reputation and status as an international centre for wealth management has grown over the past 20 to 30 years. The value of private client securities managed by banks, fund managers and stockbrokers in the UK totalled L294 billion in 2003.

CHRISTOPHER GOODWIN, International Financial Services, London (“IFSL”)

IFSL is the only independent cross-sectoral organisation in the UK facilitating the promotion of financial services internationally. IFSL helps the UK financial sector to build on its lead, reinforce its global image and develop its services in the international marketplace. It also facilitates contact between UK financial services providers and companies from abroad.

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