UK remains Europe’s most attractive destination for financial services investment, but the gap with France has narrowed

• Foreign direct investment (FDI) in financial services fell across Europe by 23% in 2020 as COVID-19 impacted business confidence and travel 
• The UK attracted 56 financial services FDI projects in 2020; still the highest in Europe but 43 projects lower than in 2019, and the largest year on year fall in a decade
• France is Europe’s second most popular FDI location recording 49 financial services projects; 11 more than in 2019, narrowing the gap with the UK
• Investor sentiment on the future of UK financial services is positive, with the UK remaining the most attractive European country and London the leading city for FS investment. Within the UK, Scotland is seen as the second most attractive region

LONDON, MONDAY 21st JUNE 2021: The UK continues to be Europe’s most attractive location for international investment into financial services, according to EY’s latest UK Attractiveness Survey for Financial Services, attracting 56 projects in 2020. However, this was 43 projects lower than in 2019 and the gap with the second largest recipient of investment – now France – has narrowed.

In 2019, the UK recorded 99 projects, more than double the financial services projects than second placed country, Germany, which registered 43 projects. In 2020, however, the UK’s lead has narrowed to 14%, with France overtaking Germany for second place by securing 49 projects. In contrast to the overall European trend of falling financial services FDI projects (23%), France saw its number of investment projects increase by 11 (a rise of 29%).

Investors see the UK as the most attractive European location for future FS FDI

As markets and economies across the globe start to recover from the economic effects of COVID-19, investor sentiment suggests that the UK is expected to continue outperforming the rest of Europe in attracting financial services investment. In a survey of global investors, the UK came out as the European country with the most investment friendly COVID-19 recovery plans (backed by 48% of respondents) and the most attractive for financial services investment (scoring 50%). Germany came second on both these metrics with 38% and 33% respectively, while France and Switzerland came in joint third place on both with 21% each.

At a city level, London continues to be seen as Europe’s most attractive destination for financial services FDI (backed by 44% of respondents) followed by Stockholm (19%) and Amsterdam (17%).

Global investors indicate FS investment into the UK is set to rise

Half (50%) of global investors said they plan to establish or extend operations in the UK over the next year. This is up dramatically from 10% in September 2020 and an increase on the 45% recorded in April 2020.

In addition, over half (54%) of those surveyed said their investment plans in the UK were going ahead as normal despite COVID-19, including 6% who plan to increase in their investment. Of the 31% who said they were planning a decrease, the vast majority said it would only be a small cutback.

Anna Anthony, UK Financial Services Managing Partner at EY, comments: “The UK has consistently been the number one location for international financial services investment since EY started tracking FDI levels and market attractiveness over twenty years ago. While its lead may have narrowed in 2020, most likely only short-term in response to pandemic-related business disruption and Brexit, investor sentiment suggests that the UK is looking to a strong future, and will continue to outperform the rest of Europe in attracting post-COVID 19 financial services investment. Investors have consistently been drawn to the strength and resilience of the City, its deep capital markets, gold-plated regulatory system and for the innovation and talent it offers. Despite the challenges of the last few years, the evidence points to this not only continuing, but growing in strength, ensuring the UK remains a world leading financial services centre.”

The UK remains the FS FDI leader, but all change behind it

The UK retained its leading position for international investment, securing 19.6% of all financial services FDI into Europe, although this was down from 26.7% in 2019. France, which had ranked fourth in 2019, leapfrogged into second place, reducing the gap with the UK to just seven projects. Germany, which had been second in 2019 with 43 projects, dropped to third place in 2020, with 37 projects. Spain, which took the third spot in 2019 with 40 projects, fell back to fourth place in 2020 with 31 projects.

Out of the 56 UK projects recorded in 2020, 49 were new projects and seven were expansions.

Cities: London remains the main centre for financial services investment

London remains the leading UK and European city for attracting FDI for financial services, securing 38 projects. However, this was down 43% from the 67 financial services projects recorded in 2019. Paris and Madrid shared second place with 21 financial services projects each in 2020; down from 29 and 24 projects respectively in 2019. Berlin took the fourth spot with 11 financial services projects in 2020, overtaking Dublin which recorded nine (this was in contrast to the 23 projects Dublin secured in 2019).

Within the UK, while London was once again the top destination for financial services FDI, Scotland was the second largest recipient with six projects – its two main cities, Edinburgh and Glasgow, recording three projects each. However, Scotland also recorded a decline in 2020 – a fall of 25% – from eight projects in 2019. The North West and Yorkshire & the Humber recorded three projects each in 2020, down from five and six respectively in 2019.

As for which regions investors think will be the most attractive for future financial services investment into the UK, London came top backed by 31% of respondents with Scotland second with 15%.

US remains Europe and UK’s biggest source of FS FDI

The largest source of financial services investment into Europe in 2020 was once again the US (this has consistently been the case since records began), with 23% of financial services projects being undertaken by US businesses. The second largest source was the UK – contributing 14% of total projects (41 projects in total) - although this represents a decline of 40% on 2019 levels.

In terms of investment into the UK, the US again was the principle source, accounting for over a third (37%) of all UK financial services FDI – up from 32% in 2019.

With only 56 financial services projects recorded in 2020, however, the absolute numbers of projects recorded by the largest investors were modest – the US accounted for 21 projects. The second largest origins of investment were Australia, Germany and Hong Kong, which recorded just three projects each.

What’s important for investors post COVID-19

Looking at the themes which will be most important to investors’ future strategies and location choices following the COVID-19 pandemic, the quality of the healthcare system came top with 46% of investors citing this; followed by 40% citing digital customer connectivity; and 38% citing sustainability and climate change. 

Financial services continues to be a key driver of UK economic growth

According to global investors surveyed, the top three drivers of UK growth in the coming years are the digital economy (top with 54% stating this), real estate (second with 42%), and financial services (third with 33%). Healthcare and wellbeing came fourth with 29%.

Anna Anthony concludes: “The COVID-19 pandemic has thrown up unprecedented health and economic challenges this past year, impacting global investment volume and appetite as well as cross-border activity. In the UK, this has added to the pressures businesses have faced through the Brexit negotiation years, so it is reassuring that even against this backdrop the UK remains the most attractive European country for FS FDI. It is also heartening to see that London is again the dominant city, with the Scottish financial services market continuing to attract significant levels of investment. However, the UK's lead has narrowed. While some European centres saw a ‘Brexit bounce’ in 2019, it appears this could have been a one-off spike for many, with just France sustaining this into 2020 and seeing further improvement in investment levels.

“It is crucial that now, post-Brexit and looking post-pandemic, UK financial services definitively stamps its mark not only within Europe, but also on the global stage, by focusing on FinTech and innovation and becoming a world leader in sustainable finance. Current investor sentiment is really encouraging and shows the UK financial services market is expected to remain Europe’s destination of choice. This will help the UK drive future economic prosperity, but if ever there has been a time to remain vigilant and ensure we’re meeting investors’ changing needs and demands, it’s now.”