GFCI 7: IFCs Rated and Ranked by IFCs

The Global Financial Centres Index (GFCI) was first produced by the Z/Yen Group in March 2007, to examine the major financial centres globally in terms of competitiveness, using a set of ratings and rankings. The GFCI has subsequently been updated every six months and the increase in the number of respondents and additional data in successive editions has enabled us to highlight the changing priorities and concerns of finance professionals across a period of great economic instability.

Global Financial Centres Index 7 (GFCI 7) was published in March 2010 and builds on the approach adopted in previous versions but with an increased emphasis on profiling major centres in terms of their linkages within the global financial architecture and the extent and quality of the services that they offer.

The GFC approach provides profiles, ratings and rankings for 75 financial centres, drawing on two separate sources of data – instrumental factors (external indices) and responses to an online survey.

Instrumental factors - grouped into five ‘areas of competitiveness’ – People, Business Environment, Infrastructure, Market Access and General Competitiveness. Evidence of a centre’s performance in these areas is drawn from a range of external measures. For example, evidence about a fair and just business environment is drawn from a corruption perception index and an opacity index. 64 factors are used in GFCI 7.

Financial centre assessments: - provided by responses to an ongoing online questionnaire completed by international financial services professionals. Respondents are asked to rate those centres with which they are familiar and to answer a number of questions relating to their perceptions of competitiveness. 32,170 financial centre assessments from 1,690 financial services professionals were used to compute GFC 7.

We identified three key measures (axes) that determine a financial centre’s profile along different dimensions of competitiveness:

• ‘Connectivity’ – this represents how well known a centre is around the world and how connected is it to other financial centres;
• ‘Diversity’– the breadth of industry sectors that flourish in a financial centre; and
• ‘Speciality’– the quality and depth of certain industry sectors in a centre.    

The 75 centres are each assigned to a profile on the basis of a set of rules for the three measures; how well connected a centre is, how broad its services are, and how specialised it is.

(To view the profile map, click here)

This profile ‘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 and San Francisco 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 and Luxembourg are ‘Global Specialists’ (specialising primarily in Asset Management) but do not have sufficiently broad ranges of financial services activities to be ‘Global Leaders’.

The offshore centres continue to come under a great deal of scrutiny with many being regarded as ‘tax havens’. There has been significant pressure applied to these centres by many national regulators as well as international bodies such as the OECD. A key demand of the regulators has been to increase the transparency of the internationally agreed tax standards. The scores of the offshore centres have generally risen in GFCI 7, but not by as much as those of many other centres, while their rankings have, with the exception of the Isle of Man, declined:

The OECD regularly updates its lists of centres that are complying with their requests. As shown in GFCI 6, there continues to be a strong correlation between GFCI ratings and the OECD status: the offshore centres which are on the OECD ‘White List’, such as the Channel Islands, have higher GFCI ratings, whereas centres on the OECD ‘Grey List’ are well below the White Listed centres.

All the top offshore centres achieve higher than average assessments from other offshore centres and generally lower responses from elsewhere, particularly with regard to the respondents from Asia. Asian responses were particularly low for Jersey and Guernsey; for Jersey the average Asian response was 157 points lower than the mean (515 against 672) and for Guernsey 193 points (470 against 663).

(To view the top 20 GFCI 7 ratings and rankings, click here)

GFCI 7 shows a general rise in ratings but this rise is variable, with the change in ratings varying from minus 25 points (Shenzhen) to plus 64 (Warsaw), with an average movement of plus 23 points. For the first time in the GFCI, London and New York are equal first, both with 775 points on a scale of 1 to 1,000, as a result of London’s score falling 15 points. The gap between the two centres has consistently been narrow, ranging from 5 to 19 points over the previous 6 editions of GFCI.

London and New York still lead the field although the gap between them and the third placed centre has been steadily cut from 81 points a year ago and 45 points 6 months ago to just 36 points now. The main concerns voiced about London’s competitiveness are the fear of a regulatory backlash that limits the freedom of financial institutions and the levels of corporate and personal taxation that may drive high earners abroad. New regulatory arrangements are also a concern in New York; and the loss of skilled personnel to the industry is a concern of respondents in all the leading centres.  

The GFCI questionnaire asks which financial centres are suffering most as a result of the current financial crisis. New York and London head the list, receiving substantially more mentions than any other centre:

Regulation, taxation, ease of doing business and retention of the pool of skilled personnel are the main concerns raised by respondents to the questionnaire.

GFCI 8 is due for publication in September 2010.