1. Introduction

The UK is the leading international center for professional financial services. The trade surplus of the UK’s financial services was $88 billion in 2017. The country’s trade surplus was more than the total combined surpluses for the US, Luxembourg, and Switzerland. Furthermore, the UK has a dominant trading share in various financial markets internationally. The financial markets include bank lending across borders, trading in foreign exchange, and global insurance premium returns. London is among the most important centers for investment and private banking. The UK is also an international leader in the provision of professional services.

Figure 1: Financial Services Exporters in 2017

The UK is not only an international center for finance, but it is also the financial hub of Europe. Brexit has strengthened the need for the UK to reinforce its investment and trade relationships with significant non-EU members (Armour, 2017). The UK also benefits from higher investment and trade capacities from emerging markets like India and China. The emerging markets are international economic growth drivers. The UK has a competitive advantage in the professional financial services. Action must be taken to strengthen the UK’s global attraction to make investments in businesses. The competitiveness of the UK’s financial industry originates from innovation, talent, investment with supportive policy, and macroeconomic environment.

2. Banking

The UK is the second position in the globe, offering leading banking credits. The UK is the largest cross-border banking center generating a balance of payments trade surplus. In 2017, the surplus was £30.4 billion representing a quarter of the UK’s trade surplus in services. Local banks in the UK generally offer higher returns on capital than most other advanced economies (Sowels, 2017). Commercial and retail banks generate most of their revenue by charging interest on loans. Secondary income sources are represented by non-interest revenue from card and overdraft charges. The banking sector in the UK contributes about 5.4% of the tax revenues in the country.

Figure 2: Banking Sector Borrowing and Lending

2.1. Retail Banking

The retail banking sector in the UK has recently grown at an exceptional rate. The growth in the retail banking sector is connected to increased internet and telephone banking as well as credit card application. The main challenges in the retail banking sector arise from unknown economic environments, increased competition, novel digital technologies, and unmatched regulatory pressures. The retail banking industry’s response to the challenges may include improved product design, customer service, cost structure, and sales models.

2.2. Private and Investment Banking

London is one of the world’s primary center for private banking. Clients benefit from a variety of skills and infrastructure that improve banking investments. Customers also have access to unparalleled expertise in the construction of wealth structures e.g., trusts. Customers may also benefit from the UK’s offshore banking locations, which are among the most important in the industry. The UK’s trading in foreign exchange constituted 37% of the total globally, ahead of the US, Singapore, Hong Kong, and Japan. The UK’s day-to-day revenue bulk was approximately $2.4 trillion.

Figure 3: Foreign Exchange Trading For the UK and Other Countries’ Private and Investment Banks

3. Securities

The UK has a substantial domestic market in bonds and equities. The country also has a dominant role in global bonds and foreign investments. The equity markets in the UK dropped significantly after the 2007-08 financial crisis. The UK’s international bonds’ value was the largest in 2017, totaling about $3.2 trillion. London is the leading intercontinental bond hub, with about 39% of worldwide subordinate market income in 2017. The UK also has one of the largest fund management markets. A total of $11.8 assets were managed in 2017. The fund management sector has a strong international orientation represented by the institutional presence between the country and foreign firms. London is also the world’s second-largest center for the management of hedge funds. The UK had $414 billion in asset management under hedge funds. The UK is also the first hedge funds’ center services e.g., prime brokerage, administration, and auditing.

4. Insurance

The UK’s insurance sector has a leading position in Europe and the rest of the world. The industry includes insurance companies, intermediaries, Lloyd’s market, and various specialist support services and professions. The London market is a separate segment of the insurance and reinsurance industry in the UK. The London market mostly consists of general reinsurance and insurance involving high-risk exposures. The strong position of the UK’s insurance industry is reflected by the country’s largest pension funds source of $3.1 trillion. The insurance sector in the UK contributed to 19.2% of European insurance premiums in 2017.

5. Occupational Pension Schemes

Occupational or trust-based pension plans are established by employers to provide retirement fund benefits for the employees (Benish et al., 2017). The retirement funds benefits were created under the Pension Schemes Acts of 1993, 1995, and trust rules and deeds govern 2008The pension schemes. The pension schemes require the appointment of trustees who are the legal owners and administers of the retirement assets. The pension assets in the UK accounted for 7.5% of global retirement possessions in 2017. The retirement assets GDP ratio was at 121%, is among the highest globally in 2017.

References

Armour, J., 2017. Brexit and financial services. Oxford Review of Economic Policy, 33(suppl_1), pp.S54-S69.

Sowels, N., 2017. Brexit and UK-based financial services. Revue Française de Civilisation Britannique. French Journal of British Studies, 22(XXII-2).

Benish, A., Haber, H., and Eliahou, R., 2017. The regulatory welfare state in pension markets: mitigating high charges for low-income savers in the United Kingdom and Israel. Journal of Social Policy, 46(2), pp.313-330.