EY: Scotland reclaims place as top UK location for financial services FDI outside London

Sue Dawe (EY)

SCOTLAND has returned to its long-held position as the top UK location for financial services foreign direct investment (FDI) outside of London, according to EY’s latest Attractiveness Survey for Financial Services.

London remains the most attractive UK destination for financial services FDI (46 projects in 2022), with Scotland in second place, recording eight projects (up from three in 2021). Scotland has been the second-placed region for financial services FDI – at least jointly – for nine of the last ten years, with the exception of 2021. The third-placed region in 2022 was the North-West of England with six projects. 

Of the eight Scottish projects, five were expansions to existing projects while three were new undertakings, spread across Edinburgh (five projects total – three expansions, two new) and Glasgow (three project total – two expansions, one new).

These findings come ahead of the full Scotland Attractiveness Survey publication later this month.

Sue Dawe, EY Scotland’s Managing Partner for Financial Services, said: “This is great news for Scotland’s financial services sector. Scotland has deep roots in financial services, and it is positive that we can report improved investor confidence and growth in foreign direct investment projects. To see a solid mix of both new and expanded financial services projects in our major cities – as well as our return to being the top location outside London – shows that Scotland is delivering for investors.

“Looking to the future, financial services investors remain confident in Scotland. The number of projects is only one metric in FDI attractiveness, and over the years the significance and scale of individual projects in Scotland – particularly in financial services – is both notable and impressive. With links between Scotland and London remaining strong, it’s clear that the two locations – which have historically held the top two spots in the UK league tables – can benefit from each other’s successes.

“I’m passionate about being part of an industry that offers the next generation of our workforce a meaningful career, fosters a strong skills pipeline, and gives back to communities it operates in. As an industry we need to keep working hard to make financial services an attractive career option for our young people – and those looking to retrain – and empower the brightest to excel, no matter their background. Scotland is punching above its weight on the global stage, and we need to keep fighting fit.”

Sandy Begbie CBE FRSE, Chief Executive, Scottish Financial Enterprise, said: “Scotland’s financial services industry has a number of major strengths for investors, from depth, breadth, and maturity of our ecosystem to talent and innovation, to our increasingly strong reputation as a global centre for green finance and fintech.

“We also recognise that we are in an increasingly competitive domestic and international marketplace, leaving no room for complacency. The continued growth and development of Scotland’s financial services industry is a key priority for SFE. In the next few months we plan to deliver a new sector growth plan, while we will also be increasing the promotion of our industry internationally over the next few years.

“Collaboration with both the Scottish and UK Government, as well as with key partners like City of London Corporation, and stakeholders from across the industry, is key to achieving this aim.”

EY’s global investor sentiment survey found that, alongside the East of England, Scotland was the joint-most attractive place to invest in the UK outside of London. Meanwhile, 14% of investors plan to establish or expand operations in Scotland over the next year, up from 12% last year and the highest percentage recorded for any location outside of London. Edinburgh is perceived to be the most attractive city outside of London, with 17% of investors reporting financial services investment plans in Scotland’s capital over the next year.

Over half (57%) of investors said London was the most attractive UK region for financial services investment, and 41% of investors plan to establish or extend financial services operations in the capital over the next year (compared to 56% last year). At a UK level, 80% of investors think the country as a whole will retain or improve its level of attractiveness for financial services investment over the next three years.

Investors cite key areas for future strategic investment as being the liquidity of markets and availability of capital (38%); the level of tech adoption by citizens and administrations (35%); and the stability of political and regulatory regimes and safety of securing measures to prevent a major crisis (28%).

Financial services FDI within the UK and Europe context

When looking specifically at the UK and how attractiveness could be further improved, investors noted that the Government should prioritise levelling up, enhancing the social infrastructure and expanding the skills levels of the UK workforce.

The UK continues to be Europe’s most attractive location for financial services FDI projects. The UK attracted 76 financial services projects in 2022 – an increase of 13 projects from 2021 – and has extended its lead over second-placed France, which secured 45 projects in 2022 – 15 fewer than in 2021.

Germany and Spain tied in third place, both recording 31 financial services investment projects in 2022. Germany’s gain of two projects from 2021 is the country’s first annual increase in financial services projects since 2018, when it recorded 81 projects in the sector. Spain’s 31 projects were down from 39 in 2021.

Financial services FDI across Europe grew 5% from 277 projects in 2021 to 292 projects in 2022, outpacing overall European FDI project growth, which only rose 1% during this period, with investment affected by the war in Ukraine, high energy prices and inflation. The UK is now home to more than a quarter of all European financial services FDI projects, having boosted its market share from 23% in 2021 to 26% in 2022. By comparison, France secured 15% of Europe’s financial services FDI projects, and both Germany and Spain each secured 11%.

UK bucks Europe-wide trend with significant number of ‘new’ projects  

In addition to the expansion of existing projects, the UK recorded a year-on-year increase in the number of ‘new’ financial services projects, which represents a new footprint for firms and is a recognised means of assessing a country’s investment dynamism and ability to attract fresh investors. Of the 76 UK financial services projects recorded in 2022, 68 were new, up from 54 in 2021. This was in contrast to the major eurozone markets which recorded declines in the numbers of new projects.

The US is Europe’s main source of FS FDI, with the UK the main recipient

The largest source of financial services investment into Europe in 2022 was once again the US, with US-backed projects up 7%, from 74 to 79 projects. US investment currently comprises 27% of all financial projects into Europe. The UK was the leading recipient of US investment, securing 21 projects (up from 17 in 2021); an increase of 24%. France, which was the leading recipient for the first time in 2021 with 19 projects, secured 13 projects in 2022.

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