Financial services sector methods changes: 1997 to 2019

• Data from the new Financial Services Survey (FSS) will be introduced as part of the Blue Book publication on 29 October 2021.
• Data have been collected so that a full sequence of National Accounts can be constructed for Other Financial Institutions.

The new Financial Services Survey (FSS) delivers major improvements to the calculation of the financial services estimates for Other Financial Institutions (OFIs) (excluding banks, insurance corporations and pension funds).

The financial services estimates currently base the calculation of output and intermediate consumption of OFIs and financial auxiliaries, for example, administration of financial markets, risk and damage evaluation and fund management activities, on industry specific data.

The industry specific data applies output valuation for the types of financial services that these units provide. The survey has been introduced to capture the development of the financial services industry which has occurred in recent years. The new data fills a current gap in the data sources used for this component of the National Accounts (Table 1).

A separate article describing the overall impact of these changes will also be published on 28 June 2021.

The FSS consists of two separate questionnaires, both introduced in 2016:

• collection of quarterly returns of assets and liabilities
• collection of income and expenditure

This article relates to the introduction of data for income and expenditure and how it will be used within the National Accounts.

Data are collected so that a full sequence of National Accounts can be constructed for Other Financial Institutions (OFIs), for example, trust funds, finance leasing and security dealing. The data includes the inputs required for deriving an estimate of output and intermediate consumption, and the main income components of gross value added (GVA). The FSS also enables the separation of output supplied to domestic and non-resident consumers, providing a new source for exports of financial services.

The survey collects data from 20 industry groups, spanning non-monetary financial institutions across industries K64 (financial service activities, except insurance and pension funding) and K66 (activities auxiliary to financial services and insurance activities). The categories S124, S125, S126 and S127 are relevant to this article.

Other Financial Institutions (OFIs) within financial corporations

Sector: S12K: Monetary financial institutions (MFI)

• S121: Central Bank
• S122: Deposit-taking corporations except the central bank
• S123: Money market funds (MMF)

Sector 12P: OFIs within financial corporations

• S124: Non-MMF investment funds
• S125: Other financial intermediaries, except insurance corporations and pension funds
• S126: Financial auxiliaries
• S127: Captive financial institutions and money lenders

Sector S12Q: Insurance corporations and pension funds

• S128: Insurance Corporations
• S129: Pension Funds

Financial industries (SIC 2007) descriptions:

• K64: Financial service activities, except insurance and pension funding
• K65: Insurance, reinsurance and pension funding, except compulsory social security
• K66: Activities auxiliary to financial services and insurance activities

Financial products (CPA 2008) descriptions:

• CPA_K64: Financial services, except insurance and pension funding
• CPA_K65: Insurance, reinsurance and pension funding services, except compulsory social security
• CPA_K66: Services auxiliary to financial services and insurance services

Table 1 shows the improvements that have been made to data sources that are used in the compilation of OFIs data. The term “none” is used to identify the sources of information that have previously been modelled using historical proportions.

Output

Output for Other Financial Institutions (OFIs) is captured directly by the Financial Services Survey (FSS) questionnaire. The output value is calculated through the aggregation of four questions collected from the FSS questionnaire, namely:

• value of spread earnings
• income from operating leases
• fees and commissions earned in the UK
• feeds and commissions earned from abroad

Consumption

The value of goods and services used in the running of the business is captured directly by the FSS questionnaire. The consumption value is calculated through the aggregation of four questions collected directly from the FSS questionnaire, namely:

• amounts payable under operating leases
• value of fees and commissions incurred in the UK
• value of fees and commissions incurred in the rest of the world
• value of goods and materials used in running the business

Exports and imports

Data on imports and exports are available from both FSS and International Trade in Services (ITIS). FSS data is available for imports and exports in Industry 64, and ITIS data is available for imports and exports in Industry 66.

Expenditure

The FSS does not collect information on the consumers of OFIs outputs. The Office for National Statistics (ONS) has no data on who consumes these services. However, to inform an estimate, the ONS has used an ad hoc survey and expert judgement to create percentage allocations for each institutional sector. For the ad hoc survey, a sub sample of 150 contributors were chosen to receive a more detailed version of the questionnaire, with an additional question added:

“Of the figure provided above, what was the value earned relating to: Households and individuals, Financial corporations, Non-financial corporations, Government and public sector, Charities and universities?”

FSS fees and commissions are consumed by three sources:

• intermediate consumption in S.12P of companies consuming the output of other companies in the same institutional sector
• intermediate consumption across the economy of companies using the output of S.12P companies
• households finally consuming the fees and commissions produced by the S.12P companies

The data are allocated to the components above using the percentages informed from the ad hoc survey and expert judgement.

Income

The FSS does not directly capture data for the income approach to the measurement of gross domestic product (GDP). The compensation of employees (CoE) data are sourced directly from HM Revenue and Customs (HMRC). As an administrative source, this already includes the CoE of the financial industries. However, because of the new data quality assurance, the ONS has reviewed and adjusted the CoE of the financial industries, based on analysis of other data sources such as Average Weekly Earnings (AWE). The remainder of the FSS change will lead to a change in gross operating surplus (GOS).

Pre-2016 data

The backcast methodology uses the growth rates of the pre-FSS implementation, output and consumption data. The aim of this approach is to preserve the growth rates of the previous time series while allowing for a level shift to the new FSS levels.

The data were backcast to 1986 which was chosen as the start point due to the deregulation of the financial markets in the UK, referred to as the “Big Bang”, in October 1986. This saw the markets undergo large structural change and removed many limitations of the time. After the deregulation, activity within the financial services industry significantly increased.

The Office for National Statistics (ONS) has improved the estimate of the Other Financial Institutions sector and will now use the latest survey data rather than rely on modelled estimates. The data will be published in the 2021 Blue Book and is part of an ongoing programme to deliver a range of improvements to financial services data, which are planned to be implemented in future Blue Books.