Defining “competitiveness” in financial services is not a simple task, according to an extensive industry report.
The aim of the report, produced by Luxembourg for Finance (LFF) in partnership with OMFIF, is to consider “the relative competitiveness of the European financial services industry against their peers in the US and Asia, and to analyse the key factors of Europe’s decrease in competitiveness over the last decade.”
The report looks closely “at elements such as scale, diversification, profitability, pricing power and valuation.”
Founded in 2008, Luxembourg for Finance (LFF) is the Development Agency for the Financial Centre. It is a public-private partnership “between the Luxembourg Government and the Luxembourg Financial Industry Federation (PROFIL). LFF’s objective is to develop Luxembourg’s financial services industry sustainably by putting qualitative growth, innovation and stability at its core.”
As stated in the update, the prior fifteen years have “seen European financial services competitiveness fall, with several factors contributing to this, including fragmentation, home bias among investors, and increasingly burdensome regulatory regimes.”
Nonetheless, Europe has a chance “to arrest the fall by working together to finalize the Capital Markets Union and related projects, as well as by continuing to lead peers in standard-setting, as is already happening in terms of sustainable finance and open finance.”
Some of the highlights of the report include:
- European financial services have lost market share in the past 15 years. Among the largest 100 asset managers globally, the share of funds from Europe has dropped to 21.9% in 2022 from 47.1% in 2007.
- Of the top 50 largest banks by Tier 1 capital, the total market capitalisation of European banks was the highest of any region globally in 2007. It is now approximately half of the value of those in North America and Asia Pacific.
- Since the 2008 financial crisis, weak gross domestic product growth, fragmentation, regulatory burden and an underdeveloped retail investor base have contributed to the loss of Europe’s global market share of the asset management industry.
Global leadership in sustainable finance standards offer a comparative advantage for European asset managers. - Achieving a Capital Markets Union would help to address European fragmentation.
Regulators need to consider the impact of new directives on banks’ ability to compete both throughout Europe and internationally. US banks are less likely to benefit from a more benign regulatory playing field as they are forced to adopt the ‘Basel endgame’. - Opportunities exist to set the pace in central bank digital currencies, distributed ledger technology and artificial intelligence.
LFF explains that it “identifies new business and market opportunities and connects international financial firms to the range of services provided in Luxembourg.”
It also acts as the first port of call “for foreign journalists, cooperates and partners with various professional associations, monitors trends in global finance, and provides relevant material on financial products and services available in Luxembourg. Furthermore, LFF manages multiple communication channels, organises seminars, and takes part in select world-class trade fairs and congresses.”
For more details and to access the full report, click here.