Challenges of the Financial Corporations sub-sectors.Joint WPFS-WPNA Workshop: SNA Implementation

Presenter: Dr Robert Dunn (Head of ESA 10 Implementation Branch) Email: Robert.Dunn@ons.gov.ukTel: +44 1633 455347

Content

• The Financial Corporations sub-sectors within the SNA & ESA

• Data Sources

• Challenges in the classification of Investment Funds• Resident vs non-resident units

• Classification of REITs as non-MMFs Investment Funds

• Challenges in identifying Special Purpose Entities• SPE activities

• Gathering data from SPEs

• As an Institutional Unit

Content

• Further Work• Business Register Improvements• Review of ONS Financial Surveys• Further use of administrative data

Financial Corporations sub-sectors within the SNA & ESA

• S.121 Central Bank.

• S.122 Deposit-taking Corporations except the Central Bank.

• S.123 Money Market Funds (MMF)

• S.124 Non-MMF Investment Funds

• S.125 Other Financial Intermediaries except Insurance Corporations

and Pension Funds

Financial Corporations sub-sectors within the SNA & ESA

• S.126 Financial Auxiliaries

• S.127 Captive Financial Institutions and

Money Lenders

• S.128 Insurance Corporations

• S.129 Pension Funds

Challenges in the Classification of Investment funds.

• Resident vs non-resident units• Majority of investment funds are legally domiciled

overseas

• Fund manager located in London;

• Around 34 sterling MMFs identified with a total value of c.£114bn, only one of which is legally domiciled in UK.

Challenges in the Classification of Investment funds.

• Classification of Real Estate Investment Trusts as Non-MMFs Investment Funds.

• REIT is a company that manages a portfolio of real estate to earn profit for shareholders

• 1st January 2007 - Launch UK REITs• REITs very tax efficient as company pays no corporation tax or

capital gains tax on profits from property investments.• A number of property management companies convert into

REITs. (Is this a true change of activity?)• Not directly supervised by the Financial Services Authority

(FSA).• Under ESA/SNA REITs are classified as non-MMF investment

trusts • Companies on Business Register classified to various

industries, all non-financial (S.11).

Challenges in Identifying Special Purpose Entities.

• Activities of SPEs:• Securitisation

• Risk sharing

• Asset transfer

• Property investing

Challenges in Identifying Special Purpose Entities.

• Gathering data from SPEs:• Identification

• Little physical presence» Country of registration used to determine

residency.

• They have no or few employees» Impacts survey response burdens.

» Grossing of survey results

Challenges in Identifying Special Purpose Entities.

• As an Institutional Unit.• Entitled to own goods and assets in its own right

• Able to take economic decisions and engage in economic activities

• Able to incur liabilities on its own behalf

• Able to draw up a complete set of accounts

Otherwise unit is consolidated with parent.

Further Work

• Business register improvements• Coverage of SPEs• Identifying relationships between fund managers and

investment funds.• Segregating holding companies and head offices

• Review of ONS financial surveys

• Further use of administrative data

QUESTIONS?