The Global Financial Centres Index (GFCI) developed from research on the competitiveness of financial centres that Z/Yen Group undertook for the City of London in 2005. Previous research compared a small number of centres, typically just London, Frankfurt, Paris, and New York. Financial centre strength was already widely distributed at that point, and Z/Yen developed the GFCI to offer a dynamic measure of the strength of financial centres across the world. The first edition of the GFCI was published in 2007. In September 2022, Z/Yen published the 32nd edition of the index, which is updated twice a year.
The GFCI is a factor assessment index that combines two distinct sets of data to create a rating for financial centres:
In 2007, GFCI 1 provided ratings for 46 financial centres, including just two IFCs – Cayman Islands and Bermuda. GFCI 32, published in September 2022, provides ratings for 119 financial centres worldwide, including all the major IFCs. This increase reflects the continuing development of the world economy and in particular trade expansion, with trade as a percentage of global GDP, thus taking population growth into account, rising from 27 per cent in 1970 to 60 per cent in 2019, an increase of 33 percentage points over the past half century. This has driven the demand for cross-border transactions, investment, and insurance, and the facilities to manage these services.
Chart 1 | Trade In Goods And Services As A Percentage Of GDP
GFCI 32 Results
Overall the average rating of centres in the index improved 4.83 per cent from GFCI 31 to GFCI 32, regaining the average ratings last recorded in March 2020. This suggests that there is confidence in financial centres themselves, even against a background of the Russian war in Ukraine, economic and energy instability, and inflationary pressures.
New York leads the index, with London second, ahead of Singapore in third place, which has overtaken Hong Kong in fourth position. Paris returned to the top 10 in the index, replacing Tokyo which fell to 16th place, perhaps reflecting a comparatively slow consumer recovery following the COVID-19 pandemic.
In the separate FinTech ranking in the GFCI, New York retains its leading position, followed by San Francisco, Los Angeles, and London, with Shanghai and Beijing in fifth and sixth place. Chinese, US, and German centres performed well in the FinTech ratings.
IFC Performance In The GFCI
Chart 2 shows the GFCI ratings for IFCs over the five years from early 2018 to late 2022. The trend is on average downwards, but all centres in the group have risen in the ratings in GFCI 32, coming back from significant falls during the pandemic period. Jersey continues to lead the group, although other centres in the group have recovered swiftly in recent times, with Cayman Islands, Guernsey, and Bermuda chasing for the top place among the group.
Chart 2 | IFC GFCI Ratings Over Five Years
Chart 3 tracks the ranking of IFCs over time. The average rank of IFCs in the GFCI has fallen steadily as more financial centres have entered the index. Most centres have seen a recovery in their rank position in GFCI 31 and GFCI 32, with Bermuda in particular rising quickly in GFCI 32.
Chart 3 | IFC GFCI Rankings Over Five Years
These recent improvements in IFC ratings and rankings appear to show increased confidence in IFCs as economies adjust following the COVID-19 pandemic and the current shocks caused by war, supply chain uncertainties, and rising inflation.
Specialisation & Regional Reputation
There are sectors of finance in which IFC’s reputation remains strong. Table 1 shows the results of selected industry sector sub-indices that we run using survey assessments from just those working in different sectors of finance. This shows centre strengths, with Jersey ranking higher than its overall position in the GFCI within all the selected sub-indices. All IFCs rank higher in the investment management and insurance sub-indices, with Bermuda particularly highly ranked by those working in insurance. In the professional services sub-index, all centres equal or improve their rank compared with their overall GFCI performance, with Cayman Islands leading the group in this area.
Table 1 | IFC Performance In Selected Industry Sub-Indices
We also produce sub-indices based on groups of instrumental factors – the areas of competitiveness in the GFCI. As table 2 shows, IFCs are generally weaker in the sub-indices relating to Business Environment and Infrastructure measures, where they may struggle to compete with larger centres based in cities. There are mixed results in the other sub-indices. However, there are particular successes, with the Isle of Man gaining 15 rank places in the Human capital sub-index, Bahamas up 20 places in the Financial Sector Development sub-index, and British Virgin Islands gaining 15 places in the Reputation & General sub-index.
Table 2 | IFC Performance In The Areas Of Competitiveness Sub-Indices
When looking at relative assessments, for most IFCs the assessments given by respondents from Western Europe are higher than average, particularly for offshore centres in Europe. Western Europe accounts for 35 to 45 per cent of the responses provided to European IFCs and 14 to 20 per cent of responses for Caribbean centres. It certainly appears that in Western Europe there is an understanding of the role and value of IFCs.
Assessments of IFCs from people in North America are generally very positive, with almost all IFCs receiving assessments that are higher than the global average on this score. This is true both for the Caribbean centres, with their historic links to the US markets, and for European IFCs.
Between 30 and 50 per cent of assessment provided to Caribbean IFCs are from people in the Asia/Pacific region and 20 to 25 per cent of assessments for European centres. However, these assessments are lower than the world average for all the IFCs considered here.
This provides opportunities for IFCs to build or strengthen their links with Asia/Pacific markets, where huge investments are being made in infrastructure and industry, and where IFCs’ traditional strengths in financing and wealth management may be particularly welcome.
Looking To The Future
In partnership with the Dubai International Finance Centre and the World Alliance of International Financial Centers, Z/Yen published a white paper on The Future Of Financial Centres in June 2022.[i]
This focused on the challenges faced in the world from demographic change, the UN Sustainable Development Goals, and the 4th Industrial Revolution. Financial Centres have a role in bringing together public and private interests to ensure that financial services provide a response to these challenges.
In this paper, we developed a vision for financial centres which focused on centres becoming:
In addition, the white paper offered a model of co-opetition, a mixture of competition, with financial centres looking to attract business, but also of collaboration, recognising that financial centres are a community with common values, action, and responsible for a co-created future to ensure the resilience and common purpose of the financial services industry of the future.
Through the Global Financial Centres Index, the Global Green Finance Index and the Smart Centres Index, Z/Yen will continue to track the development of the world’s financial and commercial centres as they move towards this vision.
Mike Wardle is Chief Executive Officer for Z/Yen, managing work on the development and delivery of the Global Financial Centres Index, Global Green Finance Index, and Smart Centres Index. Mike worked as a civil servant for almost 20 years mostly within the field of education policy. He was a director and then Chief Executive of the General Social Care Council, establishing the regulation of social workers. Mike's career moved into consultancy, programme management and coaching and he worked with Z/Yen for six years delivering programme management services to the Church of England, Unison, and the Royal Marsden NHS Foundation Trust and Chelsea and Westminster NHS Foundation Trust before taking up his current role.
Professor Michael Mainelli
Professor Michael Mainelli is Chairman of Z/Yen Group and Principal Advisor to Long Finance. He is also the creator of Z/Yen’s Global Financial Centres, Global Green Finance, and Smart Centres indices. Michael’s book, The Price of Fish: A New Approach to Wicked Economics and Better Decisions, written with Ian Harris, won the 2012 Independent Publisher Book Awards Finance, Investment & Economics Gold Prize.