London’s international workforce

By Robert Clear, Researcher

 

London’s workforce is one of the most international in the world, reflecting the fact that the city receives the lion’s share of immigrants who settle in the UK. According to the most recent census data, over a third (37%) of the capital’s workplace population was born abroad. Moreover, of those born outside the UK, nearly 60% hold British passports, meaning they have citizen rights of work and residency that are independent of international agreements. This group, foreign-born British passport holders, comprise almost a quarter (22%) of the workers in London.

The international make-up of London’s workforce has been conditioned by years of large-scale migration. Between 1975 and 2012, an average of 160,000 people moved to London annually from elsewhere in the United Kingdom.  The number of Londoners leaving the capital and moving to other parts of UK, however, exceeded this considerably – averaging 220,000 yearly. On top of this a further 100,000 Londoners moved abroad each year. Many of those moving to and from London are students and young workers. What has stopped London from being a net exporter of people is the annual average intake of 170,000 international immigrants. Their contribution to the population means that, despite the large number of existing London residents moving away, immigration from abroad (and higher birth rates to non-UK born mothers - 58% of all live births in London) tips the scales in favour of an annual population gain for the capital.

Though these figures illustrate the ebb and flow of people in the context of domestic and international migration, they do not take into account where people were born. When we look to the Census to explore the data that takes into account country of birth, we can see that in the decade between 2001 and 2011 (when the latest census was carried out) the capital’s UK-born resident population decreased by 1%, whilst the non-UK resident population increased by 54%.

Drilling further down into the workforce figures is revealing: in 2012 58% of all people employed in London were born in the UK, whilst 12% were born in EEA (European Economic Area) and 29% came from elsewhere in the world. Those born in the EEA had the highest levels of employment, at 74.4%, compared to 71.1% for UK-born and 63.1% for non-EEA-born.  Over a third of London’s residents in 2012 (38% – or 1.4 million) were employed in low-skill occupations. Of these, 47% were non–UK born, but only 14% of those in low-skilled occupations were EEA-born.

Looking at these workforce statistics, the makeup of London’s workforce poses a number of significant challenges for London policy-makers as they plan for the future, managing Brexit and wider priorities, to ensure that London remains a preeminent global centre for business.

 

 

 

[Figures taken from  GLA Economics – Trends in the demand for labour and skills across London as a whole (May 2016); GLA Economics – Migrant employment in low-skill work (March 2014); The Migration Observatory – Briefing, London: Census Profile (May 2013); GLA Economic – Draft Economic Evidence Base 2016; National insurance number registration in Greater London 2002-2015 (DWP); London Datastore – National Insurance Number Registrations of Overseas Nationals, Borough and MSOA; City of London Corporation – The Future of the City of London’s Economy (July 2015); Centre for London – Continental Capital – London’s Links with Europe (June 2016)]

 


The rapid rise of responsible business

by Asha Owen-Adams, City Business Trainee in the Economic Development Office

 

Corporate Responsibility, CSR, Responsible business… Whatever you want to call it, these are terms that are becoming harder and harder to avoid, and so they should. There is increasing emphasis on businesses to be successful in their CSR programmes, as well as being financially successful. It seems that well-known responsible business trend setters like The Body Shop and Ben & Jerry’s are not alone in their quest for business to have “a responsibility to the community and environment”. The pressure is not only coming from the business appetite for competition but from increasingly conscious customers, who seek reassurance that the organisations they interact with are also interacting responsibly.

The term Corporate Responsibility can cover such an array of ideas including responsible procurement and SME engagement, responsible development, volunteering, diversity in the workforce and sustainability. It's not so clear- cut as it can first seem; the topic also raises questions: For instance, Can a business be considered responsible if it gives to charity, but the CEO gets a 10% pay rise whilst their workers get 2%? With the gap between executive pay for top corporates being 144 times the average Brit's, the topic is definitely up for debate. In actual fact, it can often come down to personal definition of what a responsible business is. Despite this, the current work put in place by many corporates shouldn't go unrecognised for example, BLP's employee gender split of 59.4% female and 40.6% male; Liberty Speciality Markets volunteering 27,000 hours in 2015; DWF reaching and maintaining it's 80% target for recycling, as these are all valid examples of Corporate Responsibility.

The main idea is for businesses to have a more positive impact on the community, moving away from the perception that business’ one duty is profit making. And with the apparent correlation between the loyalty a customer feels towards a business and how socially responsible it is, it seems a worthwhile investment, and it is evident that many organisations are realising its worth.  

Furthermore, recent research by Business in the Community (BITC) provides evidence for the progression in corporate responsibility, as it shows that more businesses are taking responsibility by monitoring their social and global impact. 86% BITC’s Corporate Responsibility participants assess the risk of global pressures - 'megatrends' (such as population growth, social divisions and climate change) – up from 67% in 2014. The 19% increase in only 2 years demonstrates the speed at which businesses are changing their practice to become more socially responsible.

  Asha2

 

Great evidence of the growing prominence of responsible business is the phenomenon that is B Corp, a movement giving certification to member businesses (currently 1812) that meet certain social and environmental criteria, as well as standards of transparency. B Corp organisations are worth a total of $28bn, indicating that responsible business is no longer a small and isolated movement, due to its obvious financial success, rather it feels like a natural progression within business. Goldman Sachs was quoted in The B Corp Handbook reporting “more capital is now focussed on sustainable business models”, reaffirming the significance of responsible business practice.

Luckily, as well as the increasing pressure, there is also a greater level of access and information about how to get involved in CSR. The City of London’s input has programmes in place such as City Action, a volunteering brokerage, and Heart of the City (HotC), a charity and small business network which gives companies in London the tools, such as easily accessible knowledge on CSR, to improve society and demonstrate responsibility. With City Action, a programme managed by the CR Team, soon to be the Responsible Business Team, supporting businesses that do not have dedicated employee volunteering experience or resources, and HotC’s introduction of their mapping tool, which makes it easier for HotC’s members quickly detect local needs and charities they can partner with, it is really becoming harder and harder for business to claim being responsible is too challenging.

Whilst there are undeniably more steps to be taken to make corporate social responsibility the norm, not only in the City of London, but everywhere, it is important to acknowledge how much business culture has changed for the better in the past decade alone. With events in the city celebrating good CSR, Lord Mayor’s Dragon Awards and BITC’s Responsible business awards to name but a few, there is definitely enough motivation out there for maintaining good business practice.

Regarding the future of responsible business, like any other popular trend, the expectation is that it will continue to grow and develop, absorbing different businesses and encompassing broader sectors. And In short, this is down to the fact that progressively, the success of a business’ social and environmental programmes is a test on the business’ success overall.

 

 

 

 

 


How important is UK financial services trade with the EU?

by Saif Ullah, Researcher

 

With London regarded as the world’s leading financial centre, the uncertainty caused by the UK’s recent decision to leave the EU could have major implications on whether the capital can maintain its competitive position in financial services. Some major multinationals, such as Prudential, have already begun to discuss plans to move operations and staff to other centres in Europe in order to maintain access to the Single Market.

The Research team here in the City of London has been looking at the UK’s trade with EU markets to help understand how Brexit has the potential to affect financial services..

 

Goods vs services - EU

 In terms of volume, the UK exports more goods than it does services. Within the EU Germany is by far the UK’s largest trade partner for goods, exporting £60.8bn to the UK in 2014. Other major goods exporters to the UK are the Netherlands (£31.7bn) and France (£25bn).

Approximately 44% of the UK’s total exports both in goods and services went to the EU in 2014 (£229bn out of £515bn), with goods exports to the EU accounting for £148bn (65%) of this amount. However, the UK operates a significant trade deficit with the EU in terms of goods (£79bn), meaning that the UK imports more goods from the EU than it sells.

1 SAIF FS
Source: ONS, Pink Book 2015

In contrast, the UK operates a surplus in its services trade with the EU, meaning that the UK sells more than it buys. Total services exports to the EU were worth £81.3bn in 2014 while imports were worth £64.2bn, leaving a trade surplus of just over £17bn. Germany (£12.1bn), France (£11.7bn) and the Netherlands (£11bn) are the primary markets for UK services exports.

2 SAIF FES

Source: ONS, Pink Book 2015

 

Importance of financial services

Financial services (FS) and insurance make up the largest proportion of the UK’s services trade, accounting for £22.7bn (26%) of services exports to the EU. Once again, it is the larger economies in the EU that are the dominant markets for UK financial services exports, with France (£4.7bn), Netherlands (£3.5bn) and Germany (£3.3bn) being the biggest recipients.

 

Wider markets

The UK also has a number of important trading partners globally. The US imports £21.6bn worth of FS and insurance services from the UK, nearly the same as the total amount of financial services exports to the EU. Other major recipients of UK FS and insurance exports include Japan (£3bn) and Australia (£1.2bn).

Taiwan imported £176m of FS and insurance services from the UK in 2014, £18m more than the previous year, while there was also growth in trade with Japan (up nearly £200m to £3bn) and Indian markets (up £1m to £218m). Although there was a general decline in FS and insurance exports from the UK in 2014, economies such as South Africa (£436m), Singapore (£515m), Hong Kong (£593m) and Saudi Arabia (£342m) have remained major trading partners.

UK’s main FS and insurance export markets outside EU

Countries

Trade in FS and Insurance, 2014 (£m)

USA

21627

Japan

2992

Switzerland

1913

Australia

1151

Russia

1027

Canada

850

Hong Kong

593

Singapore

515

South Africa

436

Saudi Arabia

342

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: ONS, Pink Book 2015

 

Life after Brexit

While EU member states in unison remain the primary market for the UK’s FS and insurance exports, receiving nearly a third (33%) of the total amount exported, the UK has developed strong and growing trade relationships with many countries outside of the EU. The strength of the financial and insurance services cluster in London, the availability of highly skilled staff and the wealth of professional, legal and tech services all underpin the capital’s reputation as a world leading financial centre. If we can maintain these strengths, there is good reason to believe that the UK’s financial services industry can continue to prosper outside of the EU.

The City of London Corporation, and in particular the Economic Development Office will be significantly increasing our investment to support financial services across the UK, reinforcing our strategy and delivery in building future products and services in financial services; promoting exports and investment; strengthening and influencing the wider regulatory framework; and enhancing our partnerships with business and government.

 

 


Clusters in the City and the growth of the technology, media and telecommunications sector

 by Maxine Kennedy

Research Officer at the City of London

 

Last week (10 August 2016) , the City of London's Research team published a set of maps showing firm movements in and out of the City between 2012 and 2014.

Commissioned by the City of London Corporation and undertaken by Trends Business Research using their own unique database, the maps show patterns of firm activity for five sectors: insurance; professional services; finance; technology, media & telecommunications (TMT), and administration & support services.

 

MAX1Certain spatial patterns are immediately obvious: The City's insurance firms are tightly clustered in the east – a pattern that dates back hundreds of years. The City's professional services firms are more dispersed, but with a notable cluster in the west. The City's finance firms are clustered in the centre-east. The City’s administration and support service firms have no obvious cluster- which is not surprising, as these firms tend to locate near to their client base rather than near each other. The City’s TMT firms have no obvious cluster, but this could be because the sector is still developing. However there is some evidence of clustering in the west and centre-east of the City.

 

Why cluster?

Clustering continues to be a marked phenomenon  despite modern technology reducing some of the traditional needs for firms to be physically close to one another. Evidence shows that businesses continue to find benefits from, for example, a shared pool of skilled staff and suppliers. In 2013, just over 60% of City firms bought from others based in the City, and almost 70% made sales to other City firms. Research produced by the City of London earlier this year noted that the prestige of already existing firms was a key draw for firms move to the City. Others have found that productivity increases in business clusters. Whilst there is a lot of evidence about how firms cluster on a city scale - for instance, California’s Silicon Valley, the tech clusters around Cambridge University and New York’s financial hub - comparatively less is known about how firms cluster within cities. These maps help to shed light on these patterns.

 

The rise of the TMT sector

Maxine-4

TMT is a relatively new sector in the City, and has a comparatively higher churn rate (i.e. more firms starting and closing). Thus the map for this sector shows a lot of activity with some clustering in the west and central-east areas of the City boundary.

Although the City remains predominately a financial and professional services hub (financial services alone accounted 39% of City employment in 2014), the growth of the TMT sector is undeniable. Its workforce has grown 44% since 2010, and the latest figures show that 34,500 people, or 8% of the City’s workforce, is in TMT.

Recent data from JLL states that at 31%, it was the TMT sector that presented the most active demand for City offices in Q2 of this year (2016). Between 2001 and 2010, financial services firms accounted for 29% of office take-up; TMT firms at 10%. However, by the next decade, TMT firms had taken over: 21% of take-up was in the TMT sector and 19% was in the finance sector.  This echoes a larger trend in Central London, where the TMT sector has been the biggest take up of office space over the past five years.

 

Maxine5       

Source: JLL, Central London Office Market Report, Q2 2016                                                                                                                                                                                 

       Maxine-6

       Source: Knight Frank, Central London Quarterly Q2 2016

 

The future of the TMT cluster

With the TMT sector growing rapidly in the City  - and in London more widely - how might this play out spatially? Taking into account the benefits of clustering , and the  already established tech hub around Old Street on the northern border of the City, will we see this developing sector begin to form a tight cluster within the City boundaries, as the long-established City sectors have? This is something myself and colleagues in the Research team will be keeping a close eye on.

We’ll be updating the maps with the latest data available towards the end of the year, so please check this page, or sign up to our mailing list here to see how these trends evolve.

 

 

 


The implications of Brexit for London – a focus on migration

By Dr Laura Davison

Head of Research at the Economic Development Office, City of London Corporation

 

London’s pre-eminence as a global centre for financial and professional services is underpinned by many long-standing strengths across the physical, political, economic and social infrastructure. Key among these is its global reach – in terms of both access to markets and the ability to attract a skilled workforce from around the world.

Distinctive aspects of London’s economy mean that London will be sensitive to particular implications of Brexit in different ways to other parts of the UK - in particular London’s economic concentration in services and the international nature of its workforce and businesses.

For companies exporting to the EU, and London residents with EU nationalities, the impact will be directly tied to the shape of the Brexit negotiations, for example through restrictions to the free movement of EU nationals and direct access to the rest of the EU’s market of 444 million people. There will also, though, be wider consequences for London’s international residents if visa requirements change as a result, and for those international businesses who locate here because of the EU market access this allows -  for example through financial services passporting.

Census data from 2011 highlights just how international London’s population is – with over a third (37%) of residents born outside the UK, and 10% born in other EU 28 nations – 31% of the UK’s total EU population. In contrast, across the rest of the UK (excluding London), 9% were born overseas and 4% elsewhere in the EU. Recent analysis by the Centre for London[1] highlights the key part that EU workers play in some sectors of London’s economy – in particular in the construction industry and accommodation and food services, where they make up substantial proportions of the workforce.

% of jobs held by EEA nationals

Yet the FT[2], working with the Oxford Migration Observatory, has highlighted that many such workers would not meet existing visa requirements - potentially as many as 94% employed in hotels and restaurants, and three quarters of EU construction workers.

Other service sectors - such as financial and professional services - also have a much higher proportion of EU workers in London relative to other parts of the UK. In financial services, these are concentrated in particular subsectors and companies; City recruitment firm eFinance[3] carried out an analysis of the nationality and employment of its database of 156,000 workers, where 17% of London’s financial services jobs were filled by EU workers. Investment banking had the highest proportions, while there were also distinct concentrations of nationalities – such as the Polish workforce in accounting.

Nationality

Large firms are important employers in London - and particularly so for financial services, with the 90 FS firms with 500+ employees accounting for two thirds of London’s financial services employment.[4] Investment banks are some of the biggest, employing thousands in London, and many thousands more across the country. As the EU is such an important market for FS exports - 41%[5] - the shape of the UK’s future relationship with the EU will have a key impact here.

Finally, London also has a highly international student population. London Higher[6] and HESA figures show that London’s 33k EU students make up 9% of the student population, relative to about 5% for the rest of the UK. Some universities have particularly high concentrations - 18% of LSE’s students and 16% of Imperial’s are from the EU. The UK is also one of the largest recipients of EU research funding, receiving an estimated €8.8bn across 2007 – 2013.[7] Non EU countries such as Norway and Switzerland can contribute to and participate in funding programmes (such as Horizon 2020) and student exchanges (such as the Erasmus programme). Participation is contingent on certain criteria, however - as Switzerland is now discovering, with the suspension of its Erasmus and Horizon participation following its migration referendum in 2014.[8] 

While London’s migration patterns are complex, with different nationalities having moved here at different points in time and for different reasons, it is obvious that EU and international workforce, students, residents and visitors play a significant role in London’s economy. The outcome of Brexit negotiations could change the face of the city profoundly.

 

[1] http://centreforlondon.org/wp-content/uploads/2016/06/CFLJ4557_London__EU_short_report_final.pdf

[2] http://www.ft.com/cms/s/2/43645264-12a7-11e6-839f-2922947098f0.html

[3] http://news.efinancialcareers.com/uk-en/187541/anti-eu-immigration-stance-disastrous-city-london/

[4] https://www.gov.uk/government/statistics/business-population-estimates-2015

[5] http://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/compendium/unitedkingdombalanceofpaymentsthepinkbook/2015-10-30

[6] http://www.londonhigher.ac.uk/fileadmin/documents/Publica­tions_2016/LdnHigher_HESAStudents2016.pdf

[7] https://royalsociety.org/~/media/policy/projects/eu-uk-funding/uk-membership-of-eu.pdf

[8] http://www.euractiv.com/section/justice-home-affairs/news/switzerland-gets-first-penalty-for-immigration-vote/


Curators, coders, musicians and meat traders

By Robert Clear, Researcher in the City of London Research team

The City’s north west flank, where Smithfield blends into Farringdon and Clerkenwell, is an unusual district of the square mile. It’s not a centre of finance or law, contains few international headquarters, no skyscrapers and none of the great monuments that draw crowds of international tourists. It is, however, one of London’s most historically and architecturally rich areas, and the City of London Corporation aims to turn the 800 metres between the Barbican and Smithfield Market into a globally important cultural quarter.

The first big steps in this venture will be in the realms of music and conservation, and will address one of the capital’s great cultural challenges: though its orchestras are world class, the spaces they play in are not. Its most important concert halls, the Barbican (home to the London Symphony Orchestra) and the Southbank Centre, are widely considered inferior to their counterparts in other global cities such as New York, Paris and Tokyo.

A decision, however, by one of the capital’s leading cultural institutions has created an opportunity to redress this imbalance: the Museum of London is moving home, and a world class concert hall is to be built in its place – a 1,900 seat venue that will be one of the finest anywhere.  

From its current site, a 1970s construction straddling a roundabout at the end of London Wall, the Museum will relocate a few streets away to Smithfield. There it will share the Victorian home of London’s last medieval wholesale market – still the centre of London’s meat trade after almost a thousand years. The move will increase the Museum’s size from 17,000 to over 27,000 square metres and, it’s hoped, be a catalyst of further cultural developments (more information on the project can be found here).

To an extent, the flow of institutions across spaces is the product of chance – the Museum’s move happens to free a central London plot suitable for a concert hall, and its takeover of the western end of Smithfield Market is possible because the latter currently lies empty. On the other hand, each of these players and spaces is connected with the City of London Corporation. In 2021, when the Museum vacates its current spot on London’s Roman boundary, the Corporation plans to gift the land for the construction of the new concert hall. It’s also one of the Museum of London’s principal funders and is the owner of Smithfield Market.

These connections reflect the Corporation’s unique position as a cultural custodian. Less obviously, perhaps, its promotion of a cultural quarter is tied to its role as a supporter of business. For the City’s north western edge is emerging as a start-up cluster, notably in the tech sector. The Corporation’s challenge in the coming years, then, will be to take advantage of the area’s historical spaces to foster arts and business together. If successful, a district shared by curators, coders, musicians and meat traders will be a legacy for the future.


Fintech in the UK and Hungary

 by Eva Rez 

 As a City of London Programme Fellow, I have the opportunity to  participate in the Annual Alumni Event, where we discuss the latest in the financial sector. Being a principal in a venture capital company dealing with startups and interested in fintech I was asked to write about the Hungarian fintech landscape in comparison with the UK which is hopefully useful to identify directions of travel for the Hungarian fintech industry.

Key Drivers

I start this brief comparison with some of the main factors influencing the emergent – disruptive, innovative – fintech in general because this will give the framework of what comes next: market readiness, the startup ecosystem, regulation and public support.

One of the key drivers of the spread of fintech and other disruptive technologies is internet and mobile penetration. It is hard to compete with the UK, with an internet penetration of 93% (2016) and mobile penetration (2014) of 124%. Yet even though the figures are not that advanced in Hungary – 80%; 118% respectively – I would not say that the outlook is bleak. On the contrary, there is hope for the future of fintech in Hungary!

E-commerce is also a generator of more fine-tuned financial solutions. In the UK 64% of the population purchases online, spending EUR 3,073 per annum on average. In Hungary less than 30% of the population buy online, and of those 30% the average amount spent per annum  is EUR 346. (Source: Ecommerce Europe, 2014) It is also interesting to note the difference in the access to bank accounts: almost everyone (96%) in the UK has a debit card and they actually use it. Only 60% of the Hungarian population hold debit cards and are much less likely to actually use them to make payments. This is a huge gap between the two markets. It is not only about the standard of living, but probably also about the openness to new solutions.

But before getting tied up with these facts and figures, here are two charts about the Mobile Payments Readiness Index (MPRI) of the two countries from an international financial service provider. Not only do these snapshots speak for themselves, but they tell us how hot these markets are. While it is not surprising that the UK is more attractive than Hungary, it is worth highlighting the reasons why: environment, consumer readiness and regulation.

 

Mobile Payments Readiness Index  (Source: Mobile Payments Readiness Index)

  Ukfin“The United Kingdom, with a sizable economy, large household spend, and a developed infrastructure, presents a very attractive picture for mobile payments readiness, as shown in its total score of 37.5 on the MasterCard Mobile Payments Readiness Index. Among its most attractive features is the intuitive distribution of familiarity, willingness, and usage of mobile payments by type across demographic segments…”
Hungfin

 

Hungary combines a vibrant partnership scene—reflected in a very high Mobile Commerce Cluster score—a still-developing legal and regulatory system and Financial Services sector. These factors, coupled with Consumer Readiness scores that consistently trail the Index average, give Hungary a final score of 27.0, which ranks the country at number 31 on the overall MPRI.”

 

Market & Infrastructure

It is not really fair to compare the market size of the two countries as the UK is the financial centre of Europe, with a mature credit market. In Hungary, insurance and financial services give less than 4% of the country’s GDP and this proportion has shown a decreasing trend over the last couple of years. While every financial institution which would like to get on the map makes sure to be present in London, in Hungary around 50% of the banks are state-owned. Taxes imposed on this sector frightened away many global players from the relatively small market. However, this rather old-fashioned structure does not mean that local players are not open to innovation at all but it indicates that there is still a lot to be done. Here is an example of the approach of the biggest bank in Hungary:

“Hungarian OTP Bank could acquire startups or IT companies to expand its own digital services platform. OTP is introducing mobile applications and digital services to its retail customers, developed by OTP Mobil, the bank's own mobile application developing subsidiary. It would consider acquisitions in this space as well. The bank is not looking for payment systems or other fintech solutions, but could consider targets that can provide a large number of retail users or valuable products for OTP's digital services.” (Source: Mergermarket)

Regarding the capital market there are still many issues to be solved: education of debtors and investors, financing of SMEs, lack of liquidity, etc. However, the basic infrastructure is in place and it is in good shape. It is more about breathing life into the system: providing financing alternatives for companies at different stages; creating a firm investor base which remains active on the market; reducing uncertainty; and enhancing credibility and trust.

The Fintech Startup Scene

The UK fintech market generates GBP 20 billion (EUR 26 billion) revenue annually. This figure is hard to digest. Because the UK is the heart and soul of the emergent fintech industry in Europe, many different innovations have been developed, particularly in recent years following the financial crisis. Emergent fintech is about working around incumbent financial service providers and disrupting business models. This is why peer-to-peer networks and crypto currencies are already very popular. There is a huge database available in the UK on financial transactions, which can be worth a fortune, but it also reveals security and privacy issues.

Fintech-attractiveness

In Hungary, the starting line is far behind the UK. The whole startup ecosystem is just evolving and all market players have a lot to learn. But it is looking increasingly promising and the fintech space is emerging. In 2015 there were 50 startups and SMEs working on some kind of fintech innovation. Out of these, 35 early-stage companies have appeared on the scene over the past three years focusing on various micro-sectors including payment solutions, personal finance management systems, roboadvisor solutions for wealth management, crowdfunding, bitcoin and insuretech. There is one area which has not been covered yet by any local fintech startup: lending. It is both surprising and understandable in the aftermath of the last couple of years’ drama - high level of indebtedness due to FX based loans. There are also SMEs trying to gain a foothold in this space. Thanks to mainly public money via the Joint European Resources for Micro to Medium Enterprises (Jeremie Funds) companies raised EUR 13mil to develop mobile payment solutions, credit scoring and risk assessment systems. (Source: Portfolio)

There has already been a notable transaction between the UK and the Hungarian fintech sector when Misys, the UK based financial services vendor, acquired the Budapest-based digital channel solutions vendor IND Group in 2014. The value of the deal was not disclosed but based on rumours it could have been as high as EUR 30 million. A partnership had existed prior to the takeover, from 2013. The IND Group provided online and mobile banking services, personal finance management and payment solutions to its 30 clients around the globe, while Misys wanted to add these retail banking solutions to its portfolio. The transaction had some positive outcomes for the Hungarian fintech scene:

  • the founders of IND left Misys and became business angels, not only funding fintech startups but also helping teams improve their industry knowledge and make valuable contacts. They have joined startup events and accelerator programmes in order to share their experience and shepherd young talent;
  • former IND employees would like to make their own ‘disruptive baby’ - the boost in the number of fintech startups is partly due to their efforts.

It is also worth mentioning that there are young enthusiasts with a good understanding of the space, IT developer skills and innovative ideas, who are building their profile in Hungary’s fintech scene. They are also keen on building a fintech community by organising various events and meetups (e.g. Fintech Meetup; Bitcoin Budapest). From a venture capital point of view it is always exciting to meet people who know their target market and potential customers.

Support

In my opinion, supporting innovation requires education, a friendly regulatory environment and public acceptance. Let’s look at the fintech comparison from this angle. While not being an expert of the UK education system, it is clear that for finance, London is the place to be. Yet financial literacy must be improved in all countries.  People need to be informed about financial innovations. In this regard, Hungary has a long to-do list and our universities have a crucial role in this (I’ve written about this previously on my own blog site). But as I mentioned above, successful ex-fintech company builders can also have important added value here.

Regulation is always a tricky point. In my view, UK regulators are very open minded and supportive with innovation. At the last City of London Alumni event we heard that there are regular discussions between the fintech industry and the regulator. Not only did the Financial Conduct Authority recognise the benefits of these new solutions, but the term ‘regtech’ was also born referring to “nimble, configurable, easy to integrate, reliable, secure and cost-effective” regulatory systems that helps innovators better understand and manage their risks.

Recent events, even if in a different market segment, showed that Hungarian society is not that ready for new ideas. Or at least a big part of it, including the regulators, is not. I am referring to the UBER case here in Hungary, which after several taxi demonstrations resulted in a law making it possible to ban the platform for a year. We all recognise that startups will not become the next big success story if they focus on the tiny Hungarian market alone. They have to prepare for the conquest of international markets, and this definitely brightens the picture.

Change will happen regardless of current Hungarian regulation. The PSD2 (Payment Services Directive 2 - EU Directive) will enable third parties – thus startups as well – to get access to clients’ bank account data with their consent. The directive will be implemented in Hungary as of 2018. If people start to discover that many of these fintech solutions help them manage their finances, provide them with cost-effective, tailored financial services and flexible cross-border solutions, there is a chance that fintech will become a common term in Hungary as well.

Final Remarks

Having a background in finance and working for an open-minded venture capital firm – Day One Capital - makes me hope that we will not only keep plodding on behind the great fintech innovations of the UK, but that we will provide the rest of the world with some valuable solutions from Hungary. The evolution of the Hungarian fintech community is certainly happening, and it makes me optimistic about the future. I hope that in the years to come I will be able to report on a much more advanced Hungarian fintech scene.

 

Eva blogs regularly at https://medium.com/@evarez

 

 


Dispelling the myths about apprenticeships

By Ododo Ediagbonya, Employability and Enterprise Project Officer in the Economic Development Office 

 

Apprenticeships are a key talking point for government, with apprenticeships seen as a method of addressing skills shortages and stimulating economic growth As part of this refocus on apprenticeships, last year the Government announced plans to increase the number of apprenticeship starts to 3 million. Alongside this, from April 2017, employers with an annual pay bill of over £3 million will have to pay an Apprenticeship Levy of 0.5% to HMRC, to fund their apprenticeships. Discussions are on-going about how unspent levy money will be used. However, it is thought that it may be used to fund apprenticeships in small businesses.  It is hoped that this new scheme may incentivise more industries to explore the apprenticeship route for employment, particularly given the additional subsidies received from Government.

 Yet as the Government begins to implement the changes to the apprenticeship industry, many still have questions about apprenticeships. Here are a few common apprenticeship misconceptions debunked:

  • Apprenticeships are for young people

Although there is more government funding available for young people aged 16-18, apprenticeships are accessible to all age groups. In fact in the year 2014/15, 39.9% of apprenticeships were taken up by people aged 25 and over.

  • Apprentices don’t have 'real' jobs

An apprenticeship is a work-based training programme. This means that apprentices work in real job roles for a minimum of 30 hours a week.

In addition to this, an apprentice will undergo a training programme, which will result in them gaining an NVQ, BTEC HND/HNC or Degree qualification. In some cases apprentices obtain a specialist qualification such as an Accountancy ACCA qualification.

  • Apprenticeships are a less academic route

The types of apprenticeships available are extremely varied. They range from skills such as butchery to a degree apprenticeships in laboratory science.

Employers in all industries are leading the way by creating a wide variety of apprenticeship standards through the current Trailblazers programme. The apprenticeship offer will continue to grow and hold a range of both practical and academic options.

  • Apprenticeships are for new employees only

Apprenticeships can be accessed by both current and new employees. Apprenticeships can provide current employees with a flexible method of gaining new skills.

I hope this gives readers a quick update and overview of the apprenticeship landscape today and encourages serious consideration of apprenticeships. In London only 8% of firms employed apprenticeships in 2014, compared to the national average of 11%. It will be interesting to see how this figure grows over the next few years.

If you're based in the City and want to know how the City of London Corporation can support you in taking on apprentices, - or if you would like to know more about becoming an apprentice in the City, have a look at our dedicated webpage

You can also contact partnerships@cityoflondon.gov.uk for more information.

 

For further reading on non-graduate routes to employment, read Saif Ullah's blog piece


Improving International Access to Credit Markets

By report author Iain Clacher, Associate Professor in Accounting and Finance, Deputy Director of the Centre for Advanced Studies in Finance (CASIF) at Leeds University Business School and Associate at Research Republic.

 

Our latest study, published by the City of London Corporation, ‘Improving International Access to Credit Markets, shows the increasingly important role that credit markets and innovations in credit markets have played since the financial crisis of 2008. This has been driven by two key factors. The first is the squeeze of bank lending resulting from the demands of recapitalisation and new regulations. The second, as the figure below shows, is an increasing demand for credit in emerging economies.

Emerging Market Corporate Bond Composition

Corporate bond composition

Source: IMF FSR 2015

As part of our analysis, we developed the Credit Market Assessment Framework, which allowed us to undertake a detailed examination of credit markets in 59 countries. These countries account for 91% of global corporate bond issuance and 87% of global GDP. The results show clear trends in the growth and development of well-functioning credit markets and highlight key areas that need to be addressed for each country. Countries with credit markets at the earliest stage of development need more robust legal systems, better bankruptcy and insolvency processes, and a broader investor base. In addition, for some of the most developed markets there are clear agglomeration effects, and this scale is a significant source of competitive advantage.  

Moreover, the analysis shows those countries that have the highest capacity to grow their credit markets and increase the use of debt finance to support economic growth.

In addition to the development of the Credit Market Assessment Framework, we also conducted in-depth case studies across 11 countries: China, Germany, India, Japan, Mexico, Nigeria, Norway, Singapore, the UK, the US, and Vietnam. These cases look at specific credit instruments in each country and highlight the key challenges and opportunities for each market. 

While many of the developed countries in our sample are in a process of deleveraging, it is in these markets that we are also seeing significant amounts of innovation. From our analysis, there are at least three significant areas of innovation:

  1. The first is the implementation of the Capital Markets Union. The potential of a pan-European private placement debt market could result in a much more efficient allocation of capital across Europe. This development would allow much of the long term capital that is desperately seeking yield at a time of ultra-low interest rates to find investments that meet this need. At the same, it would allow firms in search of finance access to pools of capital at a time when bank finance is harder to obtain.
  1. The second is the development of peer-to-peer lending. As a result of the financial crisis, many firms have struggled to find the finance that they need, while at the same time, investors have struggled to find yield. Consequently, in the UK for example, peer to peer lending tripled between 2013 and 2015 and consumer and business lending was approximately £3bn in 2015. While this is nowhere close to the value of lending that occurs in mainstream credit markets, this is nevertheless a growing area of importance and is likely to see significant growth in the coming years.
  1. The third is green bonds. As the global shift towards a low-carbon economy continues, investors are increasingly looking for sustainable forms of investment. Green bond issuance is an important and growing feature of this new landscape. In 2014, it stood at $37bn - up from around $1bn in 2007. Moreover, this demand is not just occurring in developed markets. The developing Asian markets are a major source of demand for green finance. 

As the City looks towards the future, it should seek to develop and grow these areas in order to maintain the UK’s competitive standing as a global, diverse, and innovative credit market.

 

 

To download a free copy of the report, click here.

 


How influential is the UK in shaping EU legislation?

Conor Foley - Norton Rose Fulbright

In two weeks’ time the UK will vote on whether to leave or remain a member of the EU. Throughout the referendum campaign both sides have raised concerns over the possible impact of an in or out vote on the British economy. Many of those calling for the UK to leave the EU have suggested that too many UK businesses have to comply with legislation that is ‘handed down’ from Brussels, without the UK government having the opportunity to help shape it. This new research report, however, shows that the UK Government has played a significant role at the EU level in formulating legislation relating to the financial services sector.

The research analyses five case studies of financial services legislation proposed and adopted in the last ten years, in order to better understand the extent to which the UK has engaged with and influenced legislation successfully. Ultimately, we find that the UK plays a key role in EU negotiations and has been able to shape emerging policies through its membership of the European Union.

The analysis draws on a range of resources, including  interviews with current and former EU institution and member state government officials, legislators, lobbyists and other stakeholders. They point to significant successes of UK negotiators, from protecting the choice of investment funds available to UK investors in the ‘Alternative Investment Fund Managers Directive’; to ensuring a workable ‘passporting’ regime in ‘MiFID 2’. Crucially, across all five case studies, it is clear that the UK gains far more often than not through its legislative negotiations. 

And how does this compare to the experiences of European countries outside of the EU with access to the Single Market? Iceland, Liechtenstein and Norway in the EEA and, in a different framework, Switzerland, are also assessed on their ability to negotiate and shape policy. The report finds that none of these alternative arrangements provide the same level of potential ability to influence as being an EU member state. These countries do, however, feel the impact of EU legislation on their domestic markets. In order to access the EU’s market of 500 million consumers, they must have domestic laws in place that replicate those of the EU. For Switzerland and other ‘third countries’ this means they must be assessed as ‘equivalent’. For Norway this means EU legislation is added to the EEA agreement and must be adopted nationally. If the UK were to adopt similar arrangements, this would mean that the UK would inevitably need to implement EU legislation without being able to shape it.

There are areas where the UK could do better, but despite this, the results of the research clearly show that outside of the EU, the UK would have almost no ability to influence financial services legislation that directly impacts the City of London.