Survey into FSA regulated businesses
18th January 20082007 survey
Business confidence falls for first time in five years amid fears of market volatility and an economic downturn.
Research among the City's investment management houses and other FSA regulated businesses reveals that confidence has fallen since last year. Although a quarter (27%) ‘strongly agree' that turnover for 2007 would be better than the previous year, this is sharply down on the figures for 2006 when half (52%) of all who took part in the survey ‘strongly agreed' that turnover for the year would exceed that of 2005.
"The autumn of 2007 marks a turning point in confidence among the City's financial services sector. Optimism has been growing in recent years, but the credit crunch has put an end to this upward trend and the outlook now seems fairly uncertain, with only 55% of respondents confident about the next 12 months" said Neil Fung-On, head of the financial services and markets group at Smith & Williamson.
These were some key findings of the tenth annual survey carried out by accountancy and financial advisory group, Smith & Williamson, into FSA regulated businesses in the City of London.
The research also shows that while a resounding 9/10ths of respondents believe that London has strengthened its position as a key financial centre over the last five years, there is concern for the future, primarily surrounding macro economic issues:
"Market volatility ranks as the area of greatest concern, both in terms of how it might affect respondents' own firms and the financial services sector as a whole. The strength of the global economy and that of the UK were considered the second and third most important issues respectively, while fears of an economic recession came fourth," continues Neil.
"London's position remains strong - at least for the time being - but if these issues deepen, the world-wide financial services industry could feel the chill of a downturn. And of course, London is unlikely to be immune from such difficulties.
"Other issues of importance for individual firms were managing the strategic direction of the business and the retention of key individuals, while dealing with the volume of new regulation is a concern for the sector as a whole," said Neil Fung-On.
Tax has a growing influence
The research reveals that tax is playing a significant and increasing role in firms' business decisions. Indeed, eight out of ten (81%) of participants believe that the current tax system acts as a disincentive to undertake certain business decisions, in contrast to last year, when less than six out of ten (56%) respondents felt that tax acted as a disincentive.
Furthermore, the 2007 survey reveals that over half (56%) of participating firms have restructured their business to take advantage of tax efficiencies, whereas in 2006, just 45% did this.
In addition, a third of those who took part in the 2007 survey agreed that tax was a key factor in deciding whether to expand or maintain operations in the UK, whereas just a quarter (28%) felt it was a key factor in 2006.
The majority of firms continue to make use of potential tax savings when considering remuneration packages: 59% of firms claim to do this in 2007, and the equivalent figure for 2006 was 55%.
"The danger is that with changes to the tax position of non-domiciled people - many of whom work in the financial services industry and who are extremely mobile - they may now be less inclined to work in the UK."
"This could put a serious question mark against London's continued pre-eminence as what may be seen as marginal changes to tax legislation can have far-reaching effects. We are already seeing signs of this occurring with an increasing number of clients exploring the implications of changing the jurisdiction from which they operate."
"These tax changes, taken with worries of an economic downturn, suggest a more uncertain outlook for both the City of London and the broader financial services industry."
Participants slow to comply with new regulations
Although MiFID was introduced on 1 November 2007, one in five of participants' firms claimed to be only partly prepared for the new rules. And whilst a third of respondents had documented or finalised their ICAAP (Internal Capital Adequacy Assessment Process), at the time of the survey almost half (46%) were still in the research stages. However, most firms (53%) did not anticipate having to increase their financial resources as a result of their ICAAP.
"Many firms, particularly smaller businesses, have been struggling to keep up with the volume of regulatory change. Not only do they have to shoulder the cost of implementation, many appear to see little or no benefit in the short term from these changes. As a result, many businesses have been leaving preparations until the very last minute."
Background information on the survey:
72 senior individuals from different firms in the City of London took part in the survey which was carried out during November and December 2007.
Activities of participants:
| Banking | 6 |
| Investment management | 37 |
| Broking or dealing | 11 |
| Corporate finance | 11 |
| IFA | 5 |
| Insurance | 2 |
For further information:
Neil Fung-On, head of the financial services group
Tel: 020 7131 4086
Email: Neil Fung-On
Press queries:
Kate Harrison
Tel: 020 7131 4228
Email: Kate Harrison
Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Note to editor
Smith & Williamson is an independent professional and financial services group employing over 1,400 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. It operates from offices in London, Belfast, Bristol, Glasgow, Guildford, Maidstone, Salisbury, Southampton and Worcester. Nexia Smith & Williamson is the audit practice of Smith & Williamson and is an independent company.
Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
Nexia Smith & Williamson Audit Limited
Registered to carry on audit work and regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
