Links between financial markets in the UK and the EU

The extent of links in financial services between the UK and the EU can be measured in terms of:

• Volume of business undertaken in UK for clients in EU member states
• Transactions in the UK that are undertaken in euros
• Firms from the EU that operate out of the UK
• UK share of financial services market in Europe

Exports

UK exports of financial services to the EU totalled £17.8bn in 2010, 80% up on £9.8bn in 2005, although down from a peak of £21.8bn in 2008. Main destination countries in the EU for UK exports of financial services in 2010 were the Netherlands £3.4bn, Germany £3.2bn, France £2.9bn, Ireland £1.7bn, Luxembourg £1.2bn and Spain £829m.

Foreign investment

Out of 1,442 overseas firms in the UK authorised by the Financial Services Authority, 293 are based elsewhere in the EU, mostly from Germany 60, France 56, Netherlands 37 and Italy 34. A further 114 are from elsewhere in Europe, principally Switzerland 78.

Banking

• The amount of lending outstanding from banks in the UK to recipients in other European countries rose from $1,082bn in 2000 to $3,408bn at end-2007: loans have since fallen back to $2,756bn in September 2011, still 155% up over the decade.
• Deposits sourced from other European countries rose by a similar extent from $825bn to $2,164 between 2000 and 2011.
• Euro-denominated assets totalled $2,193bn in Q3 2011, 38% of external business of UK banks.
• Out of about 250 foreign banks authorised to take deposits in the UK, nearly a third, 82, are from the European Economic Area (EEA), with a further 29 EEA banks entitled to establish branches in the UK but not accept deposits.

Equities

Some 211 companies from EU countries are listed on the London Stock Exchange’s markets, accounting for nearly a quarter of 891 listings of foreign companies. At £161bn, EU companies also account for nearly a quarter of market valuation of these foreign listings. Most EU listings on LSE are from Ireland 101, Netherlands 27, Cyprus 16, Luxembourg 14, and Poland 10.

Foreign exchange

Euro-denominated foreign exchange turnover in the UK totalled $979bn in April 2011, making up an estimated 42% of all euro foreign exchange trading worldwide. UK forex trading in euros has increased more than fourfold in the past decade from $225bn in 2001.

Fund management

Out of the assets managed in the UK totalling £4.8bn, one third, £1.6 trillion, is managed on behalf of overseas clients. Just under a half of these consist of assets from European clients. There is also significant outsourcing; £617bn is managed in the UK on behalf of overseas domiciled investment funds, of which the majority would have been domiciled in Luxembourg and Ireland.

Derivatives

• Average daily turnover in the UK in euro-denominated OTC interest rate derivatives totalled $668bn in April 2011, accounting for 62% of all such trading worldwide. Trading in the UK in euro OTC interest rate derivatives increased fivefold from $113bn in April 2001.
• NYSE Liffe is the leading exchange in the trading of euro short term interest rate derivatives.

UK share of financial markets in EU/Europe

A high proportion of financial market activity in the EU is concentrated in the UK, especially in wholesale markets such as foreign exchange and OTC derivatives trading as well as specialist markets such as hedge funds and marine insurance. The UK has the largest presence in pension fund assets because of the development of funded pension schemes to a much greater extent than other major European economies.