Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) - Financial Services Survey 266 - return of assets and liabilities, Quarter 4 2018

The Office for National Statistics (ONS) previously announced a series of articles that will provide separate experimental balance sheet statistics for each of the other financial institutions (OFIs) European System of Accounts 2010 (ESA 2010) sub-sectors S.123 to S.127.

In July 2018, the ONS published Enhanced Financial Accounts (UK flow of funds) Financial Services Survey 266 – Quarterly Return of Assets and Liabilities. That article presented experimental statistics for Quarter 1 (Jan to Mar) 2016 to Quarter 4 (Oct to Dec) 2017 inclusive from the Financial Services Survey (FSS 266): Quarterly Return of Assets and Liabilities.

This article updates the experimental statistics contained in the July 2018 article and provides experimental statistics for Quarter 4 2018. The international Financial Stability Board’s (FSB) Global Monitoring Report on Non-Bank Financial Intermediation 2018, published in February 2019, highlighted the significant improvement in the UK’s OFIs data due to the publication of Financial Services Survey (FSS) 266 experimental statistics in July 2018.

The FSS 266 covers financial activities outside of the traditional financial sectors of banking, investment, insurance and pension funds. Examples of non-traditional financial activities sampled by the FSS 266 include non-bank financial intermediation, lending, financial leasing, factoring, securities dealing, securitisation, financial auxiliaries and non-bank holding companies.

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The Office for National Statistics (ONS) previously announced a series of articles that will provide separate experimental balance sheet statistics for each of the European System of Accounts 2010 (ESA 2010) financial sub-sectors S.123 to S.127:

• S.123 Money market funds (MMFs)
• S.124 Non-money market funds (NMMFs)
• S.125 Other financial intermediaries (OFIs)
• S.126 Financial auxiliaries
• S.127 Captive financial institutions and money lenders (CIFML)

Taken together these sub-sectors are often referred to as other financial institutions (OFIs).

This article is the latest in the series and follows on from the July 2018 article on Enhanced Financial Accounts (UK flow of funds) Financial Services Survey 266 – Quarterly Return of Assets and Liabilities. That article presented experimental statistics from the Financial Services Survey (FSS 266): Quarterly Return of Assets and Liabilities for Quarter 1 (Jan to Mar) 2016 to Quarter 4 (Oct to Dec) 2017 inclusive. This article updates the experimental statistics contained in the July 2018 article and provides experimental statistics for Quarter 4 2018.

This article presents experimental statistics from the FSS 266 in the context of the UK National Accounts and the joint ONS-Bank of England “flow of funds” initiative.

Since December 2014, the ONS and the BoE have been working in partnership to improve the flow of funds statistics for the UK. The flow of funds initiative builds upon statistics already published in the UK Economic Accounts (UKEA) and annual financial accounts (Blue Book and Pink Book) The flow of funds initiative will present a full set of experimental “from whom to whom” (W2W) financial accounts and balance sheets in late 2019, with the ambition of incorporating these experimental statistics into the UK National Accounts in 2021.

The publication of FSS 266 experimental statistics in July 2018 was an important development in the UK’s financial statistics and supported the joint ONS-Bank of England flow of funds initiative. The FSS 266 was created to improve the quality of the data in the UK National Accounts’ financial sectors, particularly for the so-called other financial institutions (OFIs) sectors. The international Financial Stability Board’s Global Monitoring Report on Non-Bank Financial Intermediation 2018, published in February 2019, highlighted the significant improvement in the UK’s OFIs data arising from the publication of the FSS 266 experimental statistics in July 2018.

The aspiration is, after making any further necessary improvements and in combination with other data sources, to incorporate these experimental statistics into the UK National Accounts for these financial sub-sectors. The articles present experimental balance sheet statistics for each of the ESA 2010 sectors not currently separately published in the UK National Accounts, The Blue Book 2018 edition, that is, S.123, S.125, S.126 and S.127. Experimental statistics will also be presented for S.124 Non-money market funds (NMMFs).

One of the main objectives of the joint ONS-Bank of England flow of funds initiative is to develop data sources for the financial activities within S.125 to S.127. The publication of new FSS 266 experimental statistics for Quarter 4 2018 via this article, demonstrates good progress towards the objective of improving the S.125 to S.127 coverage in the UK National Accounts.

Publishing FSS 266 experimental statistics for Quarter 4 2018 also potentially assists the UK with providing data to international organisations, via the provision of disaggregated data not currently available within the UK National Accounts.

The Financial Services Survey 266 (FSS 266) experimental statistics published in this article are at an early stage of development and they are not yet sufficiently well-developed to be included in the UK National Accounts. For this reason, the results obtained from the FSS 266 are deemed experimental statistics. They are being published now to provide an update on the joint Office for National Statistics (ONS) and Bank of England (BoE) “flow of funds” (FoF) initiative.

As experimental statistics, they are still under active development. Experimental statistics are published to inform and involve users in the development process. The release of experimental statistics at the earliest opportunity is an objective of the ONS-BoE flow of funds initiative, as it provides users with early sight of developments and the opportunity to submit feedback.

Further work is required on the experimental statistics presented in this article. As the FSS 266 experimental statistics are still under active development they are not directly comparable with UK National Accounts data.

The FSS 266 remains under development and improvements to its current coverage and sampling are under active consideration. It is likely that the publication of these FSS 266 experimental statistics will result in further suggestions for improvements from stakeholders, academic and financial sector participants, in addition to those within the ONS. Revisions to the FSS 266 experimental statistics being published in this article should therefore be expected.

For the 2021 UK National Accounts, FSS 266 data will be used in conjunction with data from other sources such as commercial data providers, the Bank of England and other ONS surveys. Data obtained from the nine European System of Accounts 2010 (ESA 2010) financial sub-sectors (S.121 to S.129) will be integrated to provide the most comprehensive and accurate flow of funds matrices, as required by the ONS-BoE flow of funds initiative.

The full set of ESA 2010 financial sub-sectors is:

• S.121 Central bank
• S.122 Deposit-taking corporations – except the central bank
• S.123 Money market funds (MMFs)
• S.124 Non-MMF investment funds (NMMFs)
• S.125 Other financial intermediaries
• S.126 Financial auxiliaries
• S.127 Captive financial institutions and money lenders (CIFMLs)
• S.128 Insurance corporations (IC)
• S.129 Pension funds (PF)

The FSS 266 captures the most significant components of S.125 to S.127, such as holding companies and securities dealers, and is expected to be the primary source of data for S.125 to S.127. Other data sources will supplement and complement the FSS 266 to provide complete coverage of the financial activities within the ESA 2010 financial sub-sectors S.125 to S.127. Further details on the financial activities and sectors not sampled by the FSS are provided later in this article.

The Financial Services Survey (FSS 266) primarily provides data on the stocks of financial assets and liabilities, but also collects some financial instrument counterparty and transactions data. The survey is a highly-representative sample of the population and the FSS 266 experimental statistics presented in this article are grossed results, designed to be representative of the population, rather than the raw FSS 266 survey returns themselves.

Since data for the individual European System of Accounts 2010 (ESA 2010) financial sub-sectors S.125, S.126 and S.127 are currently unavailable in the UK National Accounts, the FSS 266 was created to help improve the quality of the estimates in the UK National Accounts’ financial sectors.

The FSS 266 provides some, but not all, of the counterparty information required by the joint Office for National Statistics (ONS) and Bank of England (BoE) “flow of funds” (FoF) initiative, particularly for the ESA 2010 S.2 rest of the world (RoW) sector. Improving the counterparty data has been identified as one of the main areas for future improvement in the questionnaire.

The FSS consists of two surveys:

• Financial Services Survey 266 (FSS 266): Quarterly Return of Assets and Liabilities
• Financial Services Survey 267 (FSS 267): Quarterly Return of Income and Expenditure

The FSS 266 and FSS 267 currently use identical samples of approximately 2,000 businesses to collect information on most, but not all, financial activities within the following ESA 2010 financial sub-sectors:

• S.125 Other financial intermediaries
• S.126 Financial auxiliaries
• S.127 Captive financial institutions and money lenders

Some improvements to the UK National Accounts have already been made using FSS data for securities dealers, see the ONS June 2017 article for further details.

Securities dealers receive their own dedicated version of the FSS forms. One of the reasons for a securities dealers-specific version of the FSS 266 is their ability to provide more extensive data on derivatives than is typically available for non-securities dealers Standard Industrial Classification (SIC) codes.

There are 21 Standard Industrial Classification (SIC) codes that map approximately to the European System of Accounts 2010 (ESA 2010) financial sub-sectors S.125 to S.127:

• S.125 Other financial intermediaries
• S.126 Financial auxiliaries
• S.127 Captive financial institutions and money lenders

The Financial Services Survey 266 (FSS 266) samples 20 of these 21 SIC codes. The approximate mappings of these FSS 20 SIC codes to ESA 2010 sub-sectors was described in the Shadow Banking Introductory article.

The only SIC code not sampled by the FSS 266, within S.125 to S.127, is SIC 64.922 Activities of mortgage finance companies (that is, activities of specialist mortgage finance companies other than banks and building societies), which maps to some of the financial activities within S.125. Non-FSS 266 source(s) will be used to populate data for SIC 64.922 Mortgage finance companies.

The FSS 266 experimental statistics for financial assets and liabilities are presented in this article by:

• financial instrument
• SIC code
• SIC group

In Quarter 4 (Oct to Dec) 2018, the 20 SIC codes sampled by the FSS 266 had estimated combined financial asset holdings of £4.9 trillion. Securities dealing on own account (SIC 64.991) and non-bank holding companies were the two largest contributors and jointly responsible for 90% of total FSS 266 financial assets.

Since the 20 SIC codes sampled by the Financial Services Survey 266 (FSS 266) do not capture all financial activities contained within S.125 to S.127, direct comparisons between the FSS 266 experimental statistics presented in this article and those from the UK National Accounts for S.125 to S.127 are not possible.

The full list of the 20 SIC codes sampled by the FSS 266 is shown in Table 1.

In some cases the FSS 266 is not the sole source of experimental statistics for the aforementioned 20 SIC codes. For example, the Bank of England’s data on S.122 deposit-taking corporations’ deposits (liabilities) and loans (assets) can be compared with FSS 266 data on bank deposits’ assets and loan liabilities. The Bank of England’s forms AD (XLS, 189KB) and AL (XLS, 260KB) provide the data for S.122 deposit-taking corporations’ deposits and lending activities respectively. The experimental statistics that will be published in late 2019 will bring together the various experimental data sources and will describe how they have been integrated.

The Bank of England’s Bankstats tables provide UK monetary financial institutions’ deposits (liabilities) and loan (assets) data for many of the financial activities within S.125 to S.127. For further details see the following Bankstats tables:

• Table C1.1: Industrial analysis of monetary financial institutions' deposits from UK residents
• Table C1.2: Industrial analysis of monetary financial institutions' lending to UK residents

A consequence of the Financial Services Survey 266 (FSS 266)’s incomplete coverage of European System of Accounts 2010 (ESA 2010) financial sub-sectors S.125 to S.127 is that data obtained from the survey are not directly comparable with UK National Accounts’ data. The following financial activities within S.125 to S.127 are not sampled by the FSS 266:

• some securitisation activities (S.125)
• mortgage finance companies SIC 64.922 (S.125)
• financial head offices (S.126)
• bank holding companies (S.127)

The Bank of England is expected to provide the following data to complement the data provided by FSS 266:

• bank holding companies
• bank securitisations

The main point is that the FSS 266 doesn’t sample either of these two financial activities and so alternative data source(s) are required to populate them, in this case the Bank of England. Other data sources such as commercial data sources are also being investigated to determine what data they might potentially contribute to S.125 to S.127.

For purposes of presentation, the experimental statistics for the 20 Standard Industrial Classification (SIC) codes sampled by the Financial Services Survey 266 (FSS 266) have been aggregated into three SIC groups:

• non-bank financial intermediaries (NBFIs)
• financial adjutants (FAs)
• non-bank holding companies (NBHCs)

These three SIC groups have been created via the summation of SIC codes with broadly similar attributes. Each of these three groups is described in the following sections. Further details on the SIC codes can be found in the shadow banking introductory article.

Non-bank financial intermediaries (NBFIs) SIC group

The non-bank financial intermediaries (NBFIs) SIC group was created by summing the seven FSS SIC codes related to non-bank financial intermediation activities (for example, non-bank lending activities) (Table 2).

The SICs within NBFIs primarily fall within the scope of European System of Accounts 2010 (ESA 2010) financial sub-sector S.125.

The ESA 2010 (2.86) states that S.125 institutions:

“are principally engaged in financial intermediation by incurring liabilities in forms other than currency, deposits, or investment fund shares, or in relation to insurance, pension and standardised guarantee schemes from institutional units”

ESA 2010 (2.88 to 2.93) provides examples of S.125 institutions:

• financial vehicle corporations (FVC) engaged in securitisation transactions
• security and derivative dealers (on own account)
• financial corporations engaged in lending:
• financial leasing (that is, the financing the acquisition of fixed assets by making a loan from the lessor to the lessee; financial leasing payments consist of repayments of principal and interest payments, with a small charge for direct services provided)
• hire purchase
• provision of personal finance
• commercial finance
• factoring (a type of debt finance in which a business sells its accounts receivable, invoices, to a third party (factor) at a discount)
• specialised financial corporations:
• venture and development capital companies
• export or import financing companies
• financial intermediaries that acquire deposits and/or close substitutes for deposits, or incur loans against monetary financial institutions only; these financial intermediaries cover also central counterparty clearing houses (CCPS)

Financial adjutants (FAs) SIC group

The Financial adjutants (FAs) SIC group was created by summing the seven FSS SIC codes related to financial auxiliary activities (Table 3).

The SICs within this SIC group primarily fall within the scope of ESA 2010 financial sub-sector S.126 Financial auxiliaries.

According to ESA 2010 (2.63), S.126 institutions:

“comprises auxiliary activities for realising transactions in financial assets and liabilities or the transformation or repackaging of funds. Financial auxiliaries do not put themselves at risk by acquiring financial assets or incurring liabilities, they merely facilitate financial intermediation.”

According to ESA 2010 (2.95):

“Financial auxiliaries are principally engaged in activities closely related to financial intermediation, but which are not financial intermediaries themselves.”

ESA 2010 examples of S.126 institutions include:

• insurance brokers, salvage and average administrators, insurance and pension consultants, and so on
• loan brokers, securities brokers, investment advisers, and so on
• flotation corporations that manage the issue of securities
• corporations whose principal function is to guarantee, by endorsement, bills and similar instruments
• corporations that arrange derivative and hedging instruments, such as swaps, options and futures (without issuing them)
• corporations providing infrastructure for financial markets
• central supervisory authorities of financial intermediaries and financial markets when they are separate institutional units
• managers of pension funds, mutual funds, and so on
• corporations providing stock exchange and insurance exchange
• non-profit institutions recognised as independent legal entities serving financial corporations, but not engaged in financial intermediation
• payment institutions (facilitating payments between buyer and seller)

Non-bank holding companies (NBHCs) SIC group

The FSS 266 only collects data on non-bank holding companies (NBHCs), as the Bank of England is responsible for collecting data on bank holding companies. The NBHCs SIC group was created by summing the following six SIC codes related to non-bank holding companies (Table 4).

ESA 2010 (2.14b) states:

“A holding company that holds the assets of subsidiary corporations but does not undertake any management activities is a captive financial institution (S.127) and classified as a financial corporation. Holding companies are described under ISIC Rev.4, Section K, class 6420 (NACE Rev. 2, K 64.20) as follows:

“This class includes the activities of holding companies, i.e. units that hold the assets (owning controlling-levels of equity) of a group of subsidiary corporations and whose principal activity is owning the group.

“The holding companies in this class do not provide any other service to the businesses in which the equity is held, i.e. they do not administer or manage other units.“

The specific financial instruments shown in Table 12 have been taken directly from the question wording in the Financial Services Survey 266 (FSS 266) questionnaire. Readers are invited to consult the FSS 266 questionnaire for further information on the definitions used in the table.

The specific financial instruments shown in Table 14 have been taken directly from the question wording in the Financial Services Survey 266 (FSS 266) questionnaire. Readers are invited to consult the FSS 266 questionnaire for further information on the definitions used in the table.

The author would like to acknowledge the following ONS contributors to this article: Phil Davies, Simon Artes, Tomos Davies, Fred Norris, Dave Mathews, Jon Beadle, Dimitrios Kampylis and colleagues at the Bank of England for their valuable inputs to this article.

Flow of Funds archived background information

Explanatory notes:

Institutional sectors and financial instruments

AF.2 Currency and deposits

AF.3 Debt securities

AF.4 Loans

AF.5 Equity and investment fund shares or units

AF.6 Pensions, insurance and standardised guarantee schemes

AF.71 Financial derivatives

30 January 2019 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) – using Equifax data to visualise patterns of borrowing across the UK

26 November 2018 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) – 2018 matrix update

2 November 2018 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) – historic households and non-profit institutions serving households (NPISH) sectors data on debt securities

2 August 2018 – Economic Statistics Transformation Programme: Enhanced financial accounts (UK Flow of Funds) – using Thomson Reuters data to better understand the economy

3 July 2018 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) – using Beauhurst data to better understand the economy

2 July 2018 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flows of funds) – Financial Services Survey 266 – quarterly return of assets and liabilities

26 June 2018 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) – enhancing the understanding of UK household finance

8 May 2018 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) – shadow banking, money market funds

2 May 2018 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) – using Equifax data to better understand the economy

1 May 2018 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) – shadow banking introductory article

30 April 2018 – Experimental financial statistics for insurance using Solvency II regulatory data – enhanced financial accounts (UK flow of funds)

15 February 2018 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) – historic households and non-profit institutions serving households (NPISH) sectors data on currency and deposits

23 January 2018 – Economic Review: January 2018 – Economic Statistics Transformation Programme: a flow of funds approach to understanding quantitative easing

17 November 2017 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) – 2017 matrix update

23 October 2017 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) – progress on commercial data use

25 September 2017 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) reconciling sources of historic data for households and the non-profit institutions serving households (NPISH) sectors

12 September 2017 – Economic Statistics Transformation Programme: Enhanced financial accounts (UK flow of funds) – A flow of funds approach to understanding financial crises

31 August 2017 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) estimating the value of other accounts receivable or payable in the UK economy

21 July 2017 – Economic Statistics Transformation Programme: enhanced financial accounts (UK flow of funds) improving the measurement of company quarterly profits

3 July 2017 - Economic Statistics Transformation Programme: Enhanced financial accounts (UK flow of funds) progress on financial derivatives data

5 June 2017 – National Accounts articles: The UK Enhanced Financial Accounts; the introduction of the new securities dealers survey data and expansion of financial sub-sector detail

31 May 2017 – Economic Statistics Transformation Programme: Enhanced financial accounts (UK flow of funds) commercial data use

31 May 2017 – Economic Statistics Transformation Programme: Enhanced financial accounts (UK flow of funds) improving the economic sector breakdown

27 April 2017 – Economic Statistics Transformation Programme: Enhanced financial accounts (UK flow of funds) employee stock options

24 April 2017 – Financial intermediation services indirectly measured (FISIM) in the UK revisited

29 March 2017 – Economic Statistics Transformation Programme: Enhanced financial accounts (UK flow of funds) Government tables for the special data dissemination standards plus (SDDS plus)

30 January 2017 – The UK Enhanced Financial Accounts: changes to defined contribution pension fund estimates in the national accounts; part 2 – the data

16 January 2017 – The UK Enhanced Financial Accounts: changes to defined contribution pension fund estimates in the national accounts; part 1 – the methodology

8 August 2016 – Economic Statistics Transformation Programme: UK flow of funds experimental balance sheet statistics, 1997 to 2015

14 July 2016 – Economic Statistics Transformation Programme: Flow of funds - the international context

14 July 2016 – Economic Statistics Transformation Programme: Developing the enhanced financial accounts (UK Flow of Funds)

10 March 2016 – Identifying Sectoral Interconnectedness in the UK Economy

24 February 2016 – Improvements to the Sector & Financial Accounts

12 January 2016 – Historical Estimates of Financial Accounts & Balance Sheets

6 November 2015 – Comprehensive Review of the UK Financial Accounts including explanatory notes for each financial instrument covered in the matrix

November 2015 – Bank Stat article on the review of the UK Financial Accounts

13 July 2015 – Introduction Progress and Future Work