TheGlobal FinancialCentres Index 8 pptx

The Global Financial Centres Index GFCI is animportant part of the Financial Centre Futurestheme.. Singapore may well join thistrio soon; • confidence amongst financial servicesprofessio

Financial Centres Index 8

SEPTEMBER 2010

1 – 02010 Financial Centre Futures

Qatar Financial Centre (QFC) is a financial and

business centre established by the government

of Qatar in 2005 to attract international financial

services and multinational corporations to grow

and develop the market for financial services in

the region

QFC consists of a commercial arm, the QFC

Authority and an independent financial

regulator, the QFC Regulatory Authority It also

has an independent judiciary which comprises a

civil and commercial court and a regulatory

tribunal

QFC aims to help all QFC licensed firms generate

new, and sustainable, revenue streams It

provides access to local and regional investment

opportunities Business can be transacted inside

The QFC Authority is responsible for theorganisation’s commercial strategy and fordeveloping relationships with the globalfinancial community and other key institutionsboth within and outside Qatar One of the mostimportant roles of QFCA is to approve and issuelicences to individuals, businesses and otherentities that wish to incorporate or establishthemselves in Qatar with the Centre

The QFC Regulatory Authority is anindependent statutory body and authorisesand supervises businesses that conduct financialservices activities in, or from, the QFC It haspowers to authorise, supervise and, wherenecessary, discipline regulated firms andindividuals

The Z/Yen Group thanks the City of London

Corporation for its cooperation in the

development of the Global Financial Centres

Index (GFCI) and the commissioning of GFCI 1 – 7,

and for the use of the related data still used in

the GFCI

The author of this report, Mark Yeandle, is verygrateful to other members of the GFCI team – inparticular Jeremy Horne, Nick Danev, Ben Morrisand Richard Leeds

Long Finance aims to “improve society’sunderstanding and use of finance over the long-term”, in contrast to the short-termism thatdefines today’s financial and economic views

Our goal is a Long Finance movement thatsubmits challenging ideas and options torigorous analysis and vigorous debate Alongthe way we hope to have some intellectual fun

The future of financial centres is integral to anylong-term perspective Over the time periodLong Finance addresses, roughly the next 100years, we anticipate large changes to thestructure of the entire global financial system

Will financial centres need to exist in 100 years?

Financial Centre Futures is a Long Finance

‘theme’ that explores how finance might work

in future The theme consists of publications,events, workshops and seminars We haveplanned research on topics such as clustering,Islamic finance, the affects of technology andoutsourcing on future workplaces, all aimed athelping us know when our financial system isworking

The Global Financial Centres Index (GFCI) is animportant part of the Financial Centre Futurestheme The GFCI began as a joint venturebetween the City of London Corporation andZ/Yen Group back in 2005 Since its firstpublication in March 2007, each of the seveneditions has increased our knowledge offinancial centres, as well as generating growinginterest in the results

We are very grateful to the City of LondonCorporation for its immense partnership with us

on the first seven editions of the GFCI Withouttheir support, both as sponsors and intellectualpartners, the GFCI would not be the highlyregarded index it is today We now welcomenew sponsors for Financial Centre Futures, mostrecently the Qatar Financial Centre Authority

Professor Michael MainelliExecutive Chairman, Z/Yen Group Limited

The Global Financial Centres Index(GFCI) was first published inMarch 2007 The GFCI approachprovides profiles, ratings andrankings for 75 financial centres,drawing on two separate sources

of data – instrumental factors(external indices) and assessments

by financial services professionals to

an online survey

The main headlines of GFCI 8 are:

• there remains no significant differencebetween London and New York in theGFCI 8 ratings Respondents continue tobelieve that these centres work together formutual benefit;

• Hong Kong (in 3rd place) is now withinten points of New York and London(having been 84 points behind in March2009) Ten points on a scale of 1,000 is notsignificant and that Hong Kong has joinedLondon and New York as a genuinely globalfinancial centre Singapore may well join thistrio soon;

• confidence amongst financial servicesprofessionals has fallen since GFCI 7, asshown by lower overall ratings – 53 centreshave lower ratings in GFCI 8 compared withjust 17 centres having higher ratings (fivehave the same ratings as in GFCI 7);

• Asia continues to exhibit enhancedcompetitiveness with Shanghai entering thetop ten and Seoul moving into the top 25;

• when questioned about which financialcentres are likely to become more significant

in the next few years, the top five centresmentioned are all Asian – Shenzhen,Shanghai, Singapore, Seoul and Beijing;

• all offshorecentres showlarger falls thanaverage, continuing a trendsince the financial crisis began;

• Dubai no longer features in the top fivefinancial centres likely to become moresignificant in the next few years, but despiteDubai’s publicised problems it still holds topposition in the Middle East, followed by Qatar,then Bahrain

The Business Environment is still viewed as thekey area of competitiveness – it is nowmentioned in responses far more often thanPeople or Infrastructure One of the themes thatemerges from the GFCI 8 responses is the needfor predictability and stability of regulation andtaxation When asked about areas of concern,business professionals state that uncertaintyabout regulation and tax levels is the issue thatworries them the most

Executive Summary

When asked which single change can affect the

competitiveness of a financial centre the most,

the four changes mentioned most frequently all

fall into the Business Environment area:

• taxation;

• economic and business freedom;

• government support for the finance sector;

• transparency and predictability of regulation

The reputation of financial centres is a key

determinant of their likely success In the GFCI

model, we examine the difference between the

mean of assessments given to a centre and that

centre’s overall rating (which is the mean ofassessments adjusted to reflect the instrumentalfactors) If a centre has a higher averageassessment than the GFCI 8 rating this indicatesthat respondents’ perceptions of a centre aremore favourable than the quantitative data-based measures alone would suggest The threecentres with the highest reputational advantageare Shenzhen, Shanghai and Beijing

The GFCI model continues to grow and reflectchanges in financial centres globally Pleasemake your views known by participating in theGFCI and rating the financial centres with whichyou are familiar at:

www.financialcentrefutures.net

The GFCI provides profiles, ratings and rankingsfor 75 financial centres, drawing on twoseparate sources of data – instrumental factors(external indices) and responses to an onlinesurvey The GFCI was first published in March

2007 The GFCI has subsequently been updatedevery six months and successive growth in thenumber of respondents and data has enabled us

to highlight the changing priorities and concerns

of finance professionals, particularly sincefinancial crises began to unfold in 2007 and

2008 This is the eighth edition of GFCI (GFCI 8)

Instrumental factors: previous researchindicates that there are many factors thatcombine to make a financial centre competitive

These can be grouped into five over-arching

‘areas of competitiveness’ – People, BusinessEnvironment, Infrastructure, Market Access andGeneral Competitiveness Evidence of a centre’sperformance in these areas is drawn from arange of external measures For example,evidence about a fair and just businessenvironment is drawn from a corruptionperception index and an opacity index 75factors have been used in GFCI 8, of which 29have been updated since GFCI 7 and 21 arenew to the GFCI model (see pages 37 to 39 forfull details on external measures used for thepurpose of GFCI 8)

Financial centre assessments: GFCI usesresponses to an ongoing online questionnairecompleted by international financial servicesprofessionals Respondents are asked to ratethose centres with which they are familiar and

to answer a number of questions relating totheir perceptions of competitiveness SinceGFCI 7, 531 new respondents have beenincluded within the GFCI model, providing7,270 new assessments1from financial servicesrespondents globally from January 2010 to June

2010 inclusive Overall, 33,023 financial centreassessments from 1,876 financial servicesprofessionals were used to compute GFCI 8,with older assessments discounted according

to age

Full details of the methodology behind GFCI 8can be found on page 32 The ratings andrankings are calculated using a ‘factorassessment model’, which combines theinstrumental factors and questionnaireassessments The full list of the 75 financialcentres rated and profiled in GFCI 8 is shown

on pages 9 and 10

1 Foreign assessments only – assessments given for each respondent’s home centre are excluded

Starting with clustering and correlation analysis

of the different factors we have identified threekey measures (axes) that determine a financialcentre’s profile along different dimensions ofcompetitiveness:

‘Connectivity’ – this represents how wellknown a centre is around the world and howmuch non-resident professionals believe it isconnected to other financial centres

Respondents are asked to assess only thosecentres with which they are personally familiar

A centre’s connectivity is assessed using acombination of ‘inbound’ assessment locations(the number of locations from which a

particular centre receives assessments) and

‘outbound’ assessment locations (the number

of other centres which respondents from aparticular centre assess) If the weightedassessments for a centre are provided by over70% of other centres, this centre is deemed to

be ‘Global’ If the ratings are provided by over50% of other centres, this centre is deemed to

‘Speciality’ – the depth of industry sectors assetmanagement, investment banking, insurance,professional services and wealth managementwithin a financial centre A centre’s

performance on this dimension is calculatedfrom the difference between the GFCI ratingand the industry sector ratings

In Table 1 overleaf, ‘Diversity’ (Breadth) and

‘Speciality’ (Depth) are combined on one axis tocreate a two dimensional table of financialcentre profiles The 75 centres are assigned aprofile on the basis of a set of rules for the threemeasures: how well connected a centre is, howbroad its services are, and how specialised it is.The rating for each centre and the range foreach profile category are given in brackets forreference

Financial Centre Profiles

Connectivity

Speciality

Diversity

Broad & Deep Relatively Broad Relatively Deep Emerging

G Gllo ob ba all

T Trra an nssn na attiio on na all

San Francisco (654) Madrid (584) Guernsey (616)

Sydney (660) Isle of Man (598)

Vancouver (627) Luxembourg (634) Washington D.C (649) Shenzhen (654)

Lisbon (534) Mauritius (535) Jakarta (534) Mexico City (563) Monaco (567) Manila (523) Milan (577) Qatar (592) Prague (543) Montreal (617) Rio de Janeiro (561) Reykjavik (441) Munich (610) Wellington (585) Riyadh (503) Oslo (557) St Petersburg (491)

Stockholm (587) Vienna (571) Warsaw (517)

Table 1 | GFCI 8 Financial Centre Profiles

This profiling ‘map’ shows the eight Global

Leaders (in the top left of the table) which have

both broad and deep financial services activities

and are connected with many other financial

centres This list includes London, New York,

Hong Kong and Singapore, centres that have

been identified as the leading global financial

centres in previous editions of the GFCI Paris,

Dublin and Amsterdam are Global Diversified

centres as they are equally well connected but

do not exhibit the same depth in different

activities to be considered Global Leaders

Similarly, Geneva, Shanghai, and Dubai are

Global Specialists (specialising primarily in AssetManagement) but do not have sufficientlybroad ranges of financial services activities to beGlobal Leaders The only Global Contender isnow Moscow which is assigned a global profilebecause there is widespread awareness of itsactivities, but its financial services are notcurrently sufficiently broad and deep for it to beconsidered a leader Chart 1 below shows theprofiles mapped against the GFCI 8 ranges

The profiles shown in Chart 1 are used in ourgeographical analyses later in this report

Lo

l N od es

Lo

l D ive rsified

Establish ed Players

Tra nsn atio na

l C on ten

ders

Tra nsn atio na

l Specia lists

Tra nsn atio na

l D ive rsified

Establish ed

Transn atio

nal

G lob

al C on ten

ders

G lob

al S pe cia lists

G lob

al D ive rsified

The main headlines of GFCI 8 are:

• there is no significant difference betweenLondon and New York in GFCI 8 ratings

Respondents continue to believe that thesecentres exhibit good levels of co-operation;

• Hong Kong in 3rd place is now just ten pointsbelow New York having been 81 pointsbehind in March 2009 We believe that tenpoints on a scale of 1,000 is not a significantdifference and that Hong Kong has joinedLondon and New York as a genuinely globalfinancial centre Singapore is 32 pointsbehind Hong Kong in 4th place;

• less confidence amongst financial servicesprofessionals since GFCI 7 (March 2010) isshown by a fall in overall assessments – 53centres have lower ratings in GFCI 8compared with just 17 centres having higherratings (while the remaining five received thesame ratings as in GFCI 7), see chart 2 below

• Asian centres continue to exhibit goodgrowth with Shanghai entering the top tenand Seoul gaining four places and movinginto the top 25 for the first time;

• offshore centres have again lost ground in theratings with all centres showing larger fallsthan average;

• in the Middle East, Dubai and Bahraincontinue to slip, while Qatar has moved uptwo places to 34th

The full set of GFCI 8 ranks and ratings areshown on page 9 and 10

GFCI 8 shows a general decline in ratings butthis decline is variable, with the change inratings varying from minus 37 points (Tallinn) toplus 26 (Istanbul) with an average movement ofminus 7 points

Other notable changes include a rise of 25 forShanghai, a rise of 21 for Hong Kong anddeclines of 23 for the Cayman Islands, of 28 forthe Bahamas and of 20 each for the Isle of Manand Hamilton

The Main Headlines of GFCI 8

Ju n-10

M

ay-10

Apr-10

M ar-10Fe b-10

Jan-10

Dec-09 No v-09

O ct-09Se p-09Au g-09

Ju l-09Ju n-09

M

ay-09

Apr-09

M ar-09Fe b-09

Jan-09

Dec-08 No v-08

O ct-08Se p-08Au g-08

Ju l-08Ju n-08

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ay-08

Apr-08

M ar-08Fe b-08

Jan-08

Dec-07 No v-07

O ct-07Se p-07Au g-07

Ju l-07

500 550 600 650 700 750

Chart 2 | Three month rolling average assessments of the top 25 Centres

Table 2 | GFCI 8 Ranks and Ratings 1–44

GFCI 8 Rank

GFCI 8 Rating

GFCI 7 Rank

GFCI 7 Rating

Change in Rank

Change in Rating

Clearly evident in Chart 3 (page11) are twotrends:

• London and New York exhibit a gentle decline

in competitiveness from a peak of 815 in GFCI

“Hong Kong has been a great place to live and work in the past but it has really built a critical mass now and can challenge New York and London.”

Investment Banker based in Hong Kong

GFCI 8 Rank

GFCI 8 Rating

GFCI 7 Rank

GFCI 7 Rating

Change in Rank

Change in Rating

I 8

G FC

I 75

G FC

I 7

G FC

I 65

G FC

I 6

G FC

I 55

G FC

I 5

G FC

I 45

G FC

I 4

G FC

I 35

G FC

I 3

G FC

I 25

G FC

Chart 3 | Top four Centres GFCI Ratings over time

We have long argued that the relationship

between London and New York is mutually

supportive and a gain for one does not mean a

loss for the other Whilst many industry

professionals still see a great deal of

competition, policymakers appear to recognise

that working together on certain elements of

regulatory reform is likely to enhance the

competitiveness of both centres

Asian financial centres continue to perform well

and Tokyo is joined by Shanghai in the top ten

The GFCI questionnaire asks which centres are

likely to become more significant in the next

few years As in the past, Asia features very

strongly and is where respondents expect to

observe the most significant improvements in

Table 4 | Centres where new offices will

be opened

Again, Asia dominates this list GFCIrespondents have been predicting the rise toprominence of Shanghai for the past two years.Shanghai and Shenzhen are centres that we willcontinue to monitor closely

In past editions of the GFCI, Dubai has beenrepeatedly mentioned as a centre both likely tobecome more significant and where new officeswill be opened Dubai now features in neithercategory, probably as a result of its recent,widely reported, financial difficulties

Financial Centre Number of Mentions

Main Areas of Competitiveness

The GFCI questionnaire asks about the mostimportant factors of competitiveness Thenumber of times that each area is mentioned issummarised in Table 5:

Table 5 | Main areas of competitiveness

The GFCI questionnaire asks respondents toname the single regulatory change that wouldimprove a financial centre’s competitiveness

Although a large number of possible changeswere named, the four most mentioned areshown in Table 6 below:

Table 6 | Top four single regulatory changes

Area of Competitiveness Number of mentions

by respondents

Main concerns raised

Business Environment 78 Regulation and taxation Tax issues

account for 25% of comments

Infrastructure 25 IT and transport infrastructureMarket Access 19 Dilution of clustering

Area of Competitiveness Number of mentions

26 Understanding the industry and signalling

long term supportTransparency and

predictability of regulation

19 Predictability of regulation

We asked respondents to name the single

taxation change that would improve a financial

centre’s competitiveness Although a large

number of possible changes were named (and

everyone wants lower taxation in general) the

three most mentioned changes are shown in

Table 7 below:

Table 7 | Top three single taxation changes

The GFCI questionnaire also asks respondentshow financial centres can best signal their longterm commitment to financial services Againthere were a large number of ‘signals’

mentioned but the four most common areshown in Table 8 below:

Table 8 | Best signals of commitment to financial services

Area ofCompetitiveness

Number of mentions

by respondents

Stability in regulationand taxation

63

Investment ininfrastructure

31

Relocation (andother) incentives

25

Improving the quality

of life for expatriates

“The UK must not be complacent – JP Morgan’s decision2 is just

a start – taxation is now approaching a tipping point and I really fear a ‘brain-drain’ if the Treasury doesn’t take note.”

Asset Manager based in London

2 JP Morgan made a conscious decision in June to base the new president of its international business, Heidi Miller, in New York rather than London, amid the growing tax and regulatory burden on the UK financial industry – Daily Telegraph - 19 July 2010

European Centres

Table 9 shows the top 20 European financialcentres Nearly all have declined in the ratingssince GFCI 7 with the exception of Madrid andGlasgow

Despite the concerns over London’scompetitiveness, it seems to be maintaining itspredominance over other leading Europeancentres Chart 4 illustrates this clearly

Looking at the profiles, London, Zurich andFrankfurt are assigned the profile of GlobalLeaders They are well known globally, and have

a rich environment of different types of financialservices institutions Geneva, whilst being well-connected, is seen as a high quality specialist inthe field of Asset Management, rather than

offering a fully diversified service, and is henceassigned a profile of Global Specialist

Amsterdam, Dublin and Paris are Global centreswith strong international connections They donot however exhibit sufficient depth in financialservices to be considered as Global Leaders, but

as Global Diversified Centres

Examining the assessments given to each majorcentre is a useful means of assessing the relativestrength and weakness of their reputations indifferent regions It is important to note thatassessments given to a centre by people basedthere are excluded from the GFCI 8 model toeliminate ‘home preference’

GFCI 8 Rank

GFCI 8 Rating

GFCI 7 Rank

GFCI 7 Rating

Change in Rank

Change in Rating

London’s overall average assessment is 807 The

chart indicates that London is well regarded in

North America but less well rated by offshore

centres Assessments from Europe and Asia are

fairly close to the mean (Chart 5)

I 8

G FC

I 75

G FC

I 7

G FC

I 65

G FC

I 6

G FC

I 55

G FC

I 5

G FC

I 45

G FC

I 4

G FC

I 35

G FC

I 3

G FC

I 25

G FC

Asia (34.8%) Europe (33.3%)

Chart 5 | Assessments by region – difference from the mean – London

Mean without

European assessments

In the charts below the difference between

overall mean assessments by region is shown

The additional vertical line shows the mean if all

assessments from the home region are removed

The percentage figure in brackets after each

region is the percentage of the total number of

respondents

“In our business Zurich and Geneva are where the action is at the moment Our Swiss offices are the busiest at the moment for new business.”

Private Banking Director based in London

Offshore (29.7%) North America (5.0%)

Asia (27.7%) Europe (37.6%)

Chart 6 | Assessments by region – difference from the mean – Zurich

Offshore (10.5%) North America (6.3%)

Asia (40.9%) Europe (42.3%)

Chart 7 | Assessments by region – difference from the mean – Frankfurt

Zurich’s overall average assessment is 700

Zurich’s assessments show a more ‘balanced’

pattern than London with regional responsescloser to the mean (Chart 6)

Frankfurt’s overall average assessment is 684 In

a similar pattern to London, Frankfurt is givenlower assessments by people based in theoffshore locations than elsewhere (Chart 7)

Mean without European assessments

Mean without European assessments

Although GFCI 8 ratings have generally declinedsince GFCI 7, Asia is the one region to buck thistrend As can be seen in Table 11 below, of thetop ten Asian centres, six have shown ratingimprovements with Hong Kong and Shanghaiboth showing significant improvements.

Singapore was six points behind Hong Kong inGFCI 7 and there is now a significant gap of 32points Tokyo, despite gaining five points in theratings has slipped further behind Hong Kong

These changes are shown clearly in Chart 8

Regarding profiles, Hong Kong and Singaporeare Global Leaders They are well knownglobally, and have a rich environment ofdifferent types of financial services institutions.Beijing and Shanghai are well connected andare assigned the profile of Global Specialists –they do not yet offer a sufficiently developedand diversified service to be Global Leaders.Seoul and Tokyo are assigned the profile ofTransnational Leaders although Tokyo is veryclose to becoming a Global Leader and wewould expect them to attain that status soon

Asian Centres

GFCI 8 Rank

GFCI 8 Rating

GFCI 7 Rank

GFCI 7 Rating

Change in Rank

Change in Rating

G FC

I 8

G FC

I 75

G FC

I 7

G FC

I 65

G FC

I 6

G FC

I 55

G FC

I 5

G FC

I 45

G FC

I 4

G FC

I 35

G FC

I 3

G FC

I 25

G FC

I 2

G FC

I 15

G FC

In general, fellow Asian centres are particularlywell-supported by Asian respondents in boththe number of assessments and the averageassessment given Outside Asia, the NorthAmerican responses are more positive thanaverage about Asia The number of assessmentsgiven to Asian centres by European based

respondents is low, suggesting that Asiancentres are less well known, and, probably as aconsequence, less highly regarded than fromwithin Asia Respondents from the offshorecentres also rate Asian centres less positivelythan average This pattern can be seen in thefollowing charts:

Offshore (19.7%) North America (4.1%)

Europe (14.5%)

Chart 11 | Assessments by region – difference from the mean – Beijing

“Hong Kong, Singapore and Shanghai are all crucial centres now –

we wouldn’t be a global firm if we didn’t have offices in all three.”

Investment Banking President based in New York

Mean without Asian assessments

Mean without Asian assessments

Mean without Asian assessments

North American Centres have performedcomparatively well in GFCI 8 with only twocentres – New York and Toronto – showingsmall declines in their ratings from GFCI 7:

North American Centres

GFCI 8 Rank

GFCI 8 Rating

GFCI 7 Rank

GFCI 7 Rating

Change in Rank

Change in Rating

G FC

I 8

G FC

I 75

G FC

I 7

G FC

I 65

G FC

I 6

G FC

I 55

G FC

I 5

G FC

I 45

G FC

I 4

G FC

I 35

G FC

I 3

G FC

I 25

G FC

I 2

G FC

I 15

G FC

Chart 12 | Leading North American Centres over GFCI editions

Chicago retains its position in the GFCI 8 top tenand remains the second North Americanfinancial centre, after New York Chicago is notjust strong in derivatives trading, for which it isprobably best known, but is a real ‘all-rounder’

featuring in the top ten in the AssetManagement, Banking, Insurance, ProfessionalServices and Government & Regulatory sub-indices (see page 28)

Toronto has held 12th place overall, is the 3rdNorth American centre and the clear leader inCanada Calgary was recently added as a newfinancial centre to our online survey – it will beincluded in the listings when it has obtained asufficient number of assessments

The GFCI World

7 12

=14

1713 2

39

=40 33

20 18 1

70

71

72 74

See inset detailed map