Challenges of the Financial Corporations sub-sectors.

1. 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.uk Tel: +44 1633 455347

2. 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

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

4. 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

5. 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

6. 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.

7. 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).

8. Challenges in Identifying Special Purpose Entities. • Activities of SPEs: • Securitisation • Risk sharing • Asset transfer • Property investing

9. 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

10. 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.

11. 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

12. QUESTIONS?