Lloyds Bank Commercial Banking, Financial Institutions Sentiment Survey 2018:
- UK economic growth will be weaker in 2018 than in all other G7 nations, according to top financial services firms; sharp fall in optimism since last year
- Nevertheless most firms in the sector – the largest in the UK and a crucial bellwether of economic prospects – expect the economy to remain resilient this year
- Brexit is seen as by far the biggest risk for the year ahead; with one year to go until the UK leaves the EU, cross border access tops the list of specific worries
- Overwhelming majority of firms across the sector believe that the UK will remain most prominent European financial services hub
- Sector remains upbeat about its own growth prospects – individual firms expect revenues and other critical measures to rise this year
- Firms remain concerned about regulation, but say that implementing current rules is more of a challenge than complying with new regulation
The UK’s economic growth will be outpaced by all other G7 advanced nations this year – and Brexit remains the single biggest risk on the horizon – according to a new report from Lloyds Bank Commercial Banking, canvassing the views of the world’s biggest financial services firms.
The Financial Institutions Sentiment Survey, now in its third year, canvassed the views of over 100 boardroom and senior executives across a broad spectrum of institutions – including global banks, asset managers, insurers and private equity – on their opinions about the UK economy, business risks, regulatory pressures, technological change and cyber-risks.
Slowing growth – slipping to the back of the G7 pack
The report shows that firms across the sector are concerned about prospects for the UK economy over the coming year, in particular when compared to the outlook for other G7 nations, although on balance most firms expect the economy to remain resilient overall.
Almost three quarters (70%) of firms across the sector say they worry that UK economic growth will be weaker this year than in any of the other G7 nations – a dramatic worsening of sentiment compared to 2017 when just under a quarter of respondents (23%) held that view.
Half of the firms surveyed (48%) say they expect UK growth to stay at 2017 levels, while a third (29%) expect it to worsen and a fifth (23%) believe growth will improve.
Robina Barker Bennett, Managing Director, Head of Financial Institutions, Lloyds Bank Commercial Banking, said:
“As the biggest industry in the UK, the financial services sector is a crucial bellwether for the nation’s economic prospects. Fears about Brexit are looming large as the final countdown begins to March 2019, but our survey suggests that the UK economy will prove to be resilient and that it will come through the challenges of the next few months relatively unscathed. There is, however, a real risk that our growth will be slower this year than in all other advanced nations; and that we will fall to the back of the G7 pack.”
Risks for the year ahead – the Brexit Effect
The risk weighing most heavily on the minds of financial services firms is Brexit. More than half the firms surveyed (55%) say that they are worried about the effects of leaving the EU, with a quarter (28%) stating it is the most significant risk they are facing over the coming year. A quarter (24%) say they are now less optimistic about Brexit than they were 12 months ago, while two thirds (62%) say their opinion has not changed.
The issue that appears to be the biggest worry for the sector in relation to Brexit is cross border access. Almost half the respondents* (48%) say this is the aspect of the UK’s exit from the EU that would cause them the most concern if not agreed during 2018; while a quarter (25%) highlight regulation and regulatory equivalence, and one in ten (10%) mention worries about a UK-EU trade deal.
Other risks, in addition to Brexit, that respondents are concerned about for the coming 12 months include:
- Economic uncertainty (35%)
- Regulatory implementation (31%)
- Market volatility (24%)
- Threats of new regulation (23%)
- Weaker demand (24%)
- Geopolitical uncertainty (18%)
- Cyber threats (17%)
Regulation – on the right track
Although both regulatory implementation and the threat of new regulation are both key risks on the minds of decision makers across the financial services sector, most firms are content with the appropriateness of regulation so far. The number of firms that disagree remains relatively low.
Only a third (32%) say that the capital regulation has gone too far, falling from 42% in the 2017 survey, while just a quarter (24%) believe that the competition agenda has gone further than necessary, falling from 42% last year. This shift in sentiment follows the changes to the Basel III rules last December.
Reflecting on the regulatory climate of the past year, more than half (58%) of the firms in the survey say that it is the volume of regulation they have had to implement that has had the biggest impact; while only a fifth (20%) feel that complying with new regulation has been an issue.
Sectors’ own prospects for 2018
Firms across the sector remain relatively upbeat about their own prospects for the coming year. Two thirds (64%) expect revenues to increase this year, and most expect costs (76%), UK headcount (58%) and business investment in the UK (54%) to remain stable.
By far the biggest strategic priority for the sector, ranked as the number one aim for almost half (48%) of all firms interviewed, is organic growth, but other key aims for the year ahead include acquisition of new clients (35%); expansion within core markets (28%); and introducing new products and services (24%).
UK’s future as a financial services hub – sector wants to stay put
Despite clear worries about the risks of Brexit, the survey shows that the vast majority of global financial services firms (88%) believe the UK will remain the most prominent hub for financial services, once the UK leaves the EU.
Most firms (54%) say they are not thinking about moving any of their operations, but a quarter (26%) are considering a move – an increase from 18% in 2017 and 13% in 2016. Nevertheless most of the firms that plan to relocate (57%) do not intend to shift more than 10% of their operations. One fifth (20%) remain undecided.
Robina Barker Bennet added: “The headwinds of economic and geopolitical uncertainty, regulatory pressures, and cyber threats mean choppier waters for the sector in the months ahead.
“With one year to go until the UK leaves the EU, it is no surprise that Brexit is seen as the biggest risk on the horizon. But despite the worries about growth prospects; the lack of clarity about the final deal; and the speculation about the future of the financial services industry, the sector is upbeat about its growth prospects and long term future. There is an unmistakable confidence that the UK will hold on to its position as the single most important hub for financial services in Europe.”
UK seeks G7 consensus on digital competition after Facebook blackout
LONDON (Reuters) – Britain is seeking to build a consensus among G7 nations on how to stop large technology companies exploiting their dominance, warning that there can be no repeat of Facebook’s one-week media blackout in Australia.
Facebook’s row with the Australian government over payment for local news, although now resolved, has increased international focus on the power wielded by tech corporations.
“We will hold these companies to account and bridge the gap between what they say they do and what happens in practice,” Britain’s digital minister Oliver Dowden said on Friday.
“We will prevent these firms from exploiting their dominance to the detriment of people and the businesses that rely on them.”
Dowden said recent events had strengthened his view that digital markets did not currently function properly.
He spoke after a meeting with Facebook’s Vice-President for Global Affairs, Nick Clegg, a former British deputy prime minister.
“I put these concerns to Facebook and set out our interest in levelling the playing field to enable proper commercial relationships to be formed. We must avoid such nuclear options being taken again,” Dowden said in a statement.
Facebook said in a statement that the call had been constructive, and that it had already struck commercial deals with most major publishers in Britain.
“Nick strongly agreed with the Secretary of Stateâ€™s (Dowden’s) assertion that the governmentâ€™s general preference is for companies to enter freely into proper commercial relationships with each other,” a Facebook spokesman said.
Britain will host a meeting of G7 leaders in June.
It is seeking to build consensus there for coordinated action toward “promoting competitive, innovative digital markets while protecting the free speech and journalism that underpin our democracy and precious liberties,” Dowden said.
The G7 comprises the United States, Japan, Britain, Germany, France, Italy and Canada, but Australia has also been invited.
Britain is working on a new competition regime aimed at giving consumers more control over their data, and introducing legislation that could regulate social media platforms to prevent the spread of illegal or extremist content and bullying.
(Reporting by William James; Editing by Gareth Jones and John Stonestreet)
Britain to offer fast-track visas to bolster fintechs after Brexit
By Huw Jones
LONDON (Reuters) – Britain said on Friday it would offer a fast-track visa scheme for jobs at high-growth companies after a government-backed review warned that financial technology firms will struggle with Brexit and tougher competition for global talent.
Finance minister Rishi Sunak said that now Britain has left the European Union, it wants to make sure its immigration system helps businesses attract the best hires.
“This new fast-track scale-up stream will make it easier for fintech firms to recruit innovators and job creators, who will help them grow,” Sunak said in a statement.
Over 40% of fintech staff in Britain come from overseas, and the new visa scheme, open to migrants with job offers at high-growth firms that are scaling up, will start in March 2022.
Brexit cut fintechs’ access to the EU single market and made it far harder to employ staff from the bloc, leaving Britain less attractive for the industry.
The review published on Friday and headed by Ron Kalifa, former CEO of payments fintech Worldpay, set out a “strategy and delivery model” that also includes a new 1 billion pound ($1.39 billion) start-up fund.
“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.
Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.
The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance, all mean the sector’s future in Britain is not assured.
It also recommends more flexible listing rules for fintechs to catch up with New York.
“We recognise the need to make the UK attractive a more attractive location for IPOs,” said Britain’s financial services minister John Glen, adding that a separate review on listings rules would be published shortly.
“Those findings, along with Ron’s report today, should provide an excellent evidence base for further reform.”
Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.
“It’s a question of knowing who to call when there’s a problem,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.
A UK fintech wanting to serve EU clients would have to open a hub in the bloc, an expensive undertaking for a start-up.
“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” Swinburne said.
The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).
“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.
($1 = 0.7064 pounds)
(Reporting by Huw Jones; editing by Jane Merriman and John Stonestreet)
G20 to show united front on support for global economic recovery, cash for IMF
By Michael Nienaber and Andrea Shalal
BERLIN/WASHINGTON/ROME (Reuters) – The world’s financial leaders are expected on Friday to agree to continue supportive measures for the global economy and look to boost the International Monetary Fund’s resources so it can help poorer countries fight off the effects of the pandemic.
Finance ministers and central bank governors of the world’s top 20 economies, called the G20, held a video-conference on Friday. The global response to the economic havoc wreaked by the coronavirus was at top of the agenda.
In the first comments by a participating policymaker, the European Union’s economics commissioner Paolo Gentiloni said the meeting had been “good”, with consensus on the need for a common effort on global COVID vaccinations.
“Avoid premature withdrawal of supportive fiscal policy” and “progress towards agreement on digital and minimal taxation” he said in a Tweet, signalling other areas of apparent accord.
A news conference by Italy, which holds the annual G20 presidency, is scheduled for 17.15 (1615 GMT)
The meeting comes as the United States is readying $1.9 trillion in fiscal stimulus and the European Union has already put together more than 3 trillion euros ($3.63 trillion) to keep its economies going despite COVID-19 lockdowns.
But despite the large sums, problems with the global rollout of vaccines and the emergence of new variants of the coronavirus mean the future of the recovery remains uncertain.
German Finance Minister Olaf Scholz warned earlier on Friday that recovery was taking longer than expected and it was too early to roll back support.
“Contrary to what had been hoped for, we cannot speak of a full recovery yet. For us in the G20 talks, the central task remains to lead our countries through the severe crisis,” Scholz told reporters ahead of the virtual meeting.
“We must not scale back the support programmes too early and too quickly. That’s what I’m also going to campaign for among my G20 colleagues today,” he said.
Hopes for constructive discussions at the meeting are high among G20 countries because it is the first since Joe Biden, who vowed to rebuild cooperation in international bodies, became U.S. president.
While the IMF sees the U.S. economy returning to pre-crisis levels at the end of this year, it may take Europe until the middle of 2022 to reach that point.
The recovery is fragile elsewhere too – factory activity in China grew at the slowest pace in five months in January, hit by a wave of domestic coronavirus infections, and in Japan fourth quarter growth slowed from the previous quarter with new lockdowns clouding the outlook.
“The initially hoped-for V-shaped recovery is now increasingly looking rather more like a long U-shaped recovery. That is why the stabilization measures in almost all G20 states have to be maintained in order to continue supporting the economy,” a G20 official said.
But while the richest economies can afford to stimulate an economic recovery by borrowing more on the market, poorer ones would benefit from being able to tap credit lines from the IMF — the global lender of last resort.
To give itself more firepower, the Fund proposed last year to increase its war chest by $500 billion in the IMF’s own currency called the Special Drawing Rights (SDR), but the idea was blocked by then U.S. President Donald Trump.
Scholz said the change of administration in Washington on Jan. 20 improved the prospects for more IMF resources. He pointed to a letter sent by U.S. Treasury Secretary Janet Yellen to G20 colleagues on Thursday, which he described as a positive sign also for efforts to reform global tax rules.
Civil society groups, religious leaders and some Democratic lawmakers in the U.S. Congress have called for a much larger allocation of IMF resources, of $3 trillion, but sources familiar with the matter said they viewed such a large move as unlikely for now.
The G20 may also agree to extend a suspension of debt servicing for poorest countries by another six months.
($1 = 0.8254 euros)
(Reporting by Michael Nienaber in Berlin, Jan Strupczewski in Brussels and Gavin Jones in Rome; Andrea Shalal and David Lawder in Washington; Editing by Daniel Wallis, Susan Fenton and Crispian Balmer)
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