What's in store for London's financial services sector?

Jessica Morris
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There are a number of threats facing London's financial services sector (Source: Getty)

Going into this year, a general election in May, as well as the possibility of a "Brexit" all loom over the City's future. So what are some of the biggest risks facing London's financial services industry?

It's an important question. Financial and related professional services contributed £174bn to the UK economy in 2012, or 12.6% of the total. And, if the economy continues to perform well, the sector will add 0.2 per cent to gross domestic product for each one of the next six years according to the CityUK.

But a so-called "Brexit", or Britons voting to leave the European Union, is one factor that threatens to derail this. Prime Minister David Cameron has promised a referendum on EU membership if his party wins May's election.

The European Union hasn't delivered much in recent years due to the financial crisis and bad management but over time "it's delivered an awful lot [and a Brexit] would be a big loss for the UK in economic terms," Professor Stephany Griffiths-Jones, finance professor at Columbia University, said at a debate organised by the London Economy Committee on Friday.

Philippe Lamberts MEP, co-chair of the Green Group in the European Parliament, argued that one of the biggest risks to the financial services sector was actually its size.

He warned a bloated financial services sector posed a risk to the economy. "Does the excessive size of the financial sector really contribute to the economy?" Lamberts asked. "Evidence from the Bank of International Settlements suggests ... beyond a certain point it has a negative impact."

But what does all this look like on the ground?

Sean McGovern, chief risk officer and general counsel at Lloyds of London, asked what was the purpose of financial regulation. "Some say [its purpose is to make the financial services sector] smaller and I’m not sure that’s a necessary or proper function of regulation."

And McGovern also stressed that a potential exit from the European Union would be bad news for the insurance industry. He said that 15% of Lloyd's premium income comes from the EU, excluding the UK, and a "Brexit" would jeopardise this.

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