In order to understand whether our global financial system is working efficiently, the Long Finance Group was established in 2007 by Z/Yen Group in conjunction with Gresham College, London.This group publishes papers under the Financial Futures Series “in order to initiate discussions on the changing landscape of global finance.”

The landmark publication of this group is the Global Financial Centres Index (GFCI) that presently provides “profiles, ratings and ranking for 83 financial centres, drawing on two separate sources of data – instrumental factors and on line survey.” The GFCI first published by Z/Yen Group in 2007 and updated every six months and the latest is the 15th Edition released in March 2014 (GSCI 15).

INSTRUMENTAL FACTORS
The instrumental factors are identified by research on a multitude of factors that lead to competitiveness of the financial centres and the “areas of competitiveness” are “Business Environment, Financial Sector Development, Infrastructure, Human Capital, Reputational and General Factors”.
The evaluation of the centre’s performance is drawn from a wide range of external indices for example “evidence about telecommunications, infrastructure competitiveness of a financial centre is from a global digital economy ranking (supplied by the Economist Intelligence Unit (EIU) and an IT industry competitiveness survey by the World Economic Forum.”It is reported that a total of 103 factors have been used in GFCI 15.

FINANCIAL CENTRE ASSESSMENTS
GFCI is evaluated from an ongoing “online questionnaire” with responses from professionals engaged in international financial services. To this end, the questionnaire requested the respondents to rate those centres which they are familiar with and to provide answers to a number questions related to t heir assessment of competitiveness. It is recorded that responses were received from 3246 financial services professionals and were collected over the previous t wo years ending December 2013. These responses “provided 24441 financial centre assessments which were used to compute GCFI 15.”

METHODOLOGY
The ratings provided in the CFCI for financial centres are calculated by “factor assessment model” that use two distinct categories of inputs namely instrumental factors and financial centre assessments as described earlier.Further it is recorded that “103 instrumental factors were selected because the features they measure contribute in various ways to the fourteencompetitiveness factors i dentified i n previous research”

COMPETIVENESS - FINANCIAL CENTRE ASSESSMENTS
These Competitiveness Factors in the financial center assessments and their relative importance in order of ranking are
The availability of skilled personnel
The regulatory environment
Access to international financial markets
The availability of business infrastructure
Access to customers
A fair and just business environment
Government responsiveness
The corporate tax regime
Operational costs
Access to suppliers of professional services
Quality of life
Culture and language
Quality /availability of commercial property

The personal tax regime In accordance with the number of responses received the main concerns in the area of competitiveness were:
Business environment - Corruption, transparency and rule of law, over regulation and inflexibility, diminishing market friendliness of regulators, stability and flexibility needed (333 mentions).Taxation - Clarity, transparency and simplicity, stability and predictability are all important. (309 mentions)
Human Capital - Labour markets and immigration regulation rigidity. Insufficient investment in employees’ skills, availability of skilled people is key to increase in employment (307 mentions).Infrastructure - ICT speed and security overcrowding and overloading more information is needed especially in developed centres (290 mentions)Reputation - A key factor and rising in importance underlying factors are more important but less recognized. (277 mentions)
Market access - Physical proximity to clients and suppliers still matters. (254 mentions)It is also interesting to note that the respondents to the GFCI questionnaire on competitiveness of financial centres have indicated 10 centres that would become important in the next few years and five namely Busan (South Korea), Singapore, Hong Kong, Shanghai, Dalian (China) and Soul are in the Asia- Pacific region which indicate the future importance in competitiveness of these centres as compared to the rest of the world. According to an asset manager based in London it is stated that “Hong Kong and Singapore are now such powerful centres that I can’t see where else the business is going”

INSTRUMENTAL FACTOR MEASURES OF COMPETIVENESS
According to the application of the linear regression method (RSq), the measures of competiveness related to i nstrumental factors are given i n Appendix 4 of the GSCI 15.There are 25 instrumental factors in order of importance namely (1) Global Power City Index (2) City Global Image (3) World Competitiveness Scoreboard(4) Banking Industry Country Risk Assessments (5) Office Occupancy Costs (6) Global Cities Index(7) Global Competitiveness Index (8) Financial Security Index(9) Global City Competitiveness (10) Citizens Domestic Purchasing Power (11) Price Levels (12) Liner Shipping Connectivity Index (13) Value of Share Trading (14) Top Tourism Destinations (15) Business Environment (16) Wage Comparison Index(17) Number of Greenfield Investments (18) Political Risk (19) Personal Safety (20) IT industry Competitiveness (21) Quality of Roads(22) Infrastructure (23) Citywide Co2 Emissions(24) Innovation Cities Global Index and (25) Capital Access Index

FINANCIAL CENTRE PROFILES
The Global financial Centre Index 15 (GFCI 15) using “clustering and correlation analyses” has identified three key areas that determine the competitiveness of financial sector profiles along three different criteria namely “Diversity, Connectivity and Specialty”.Connectivity - Connectivity is determined by the extent that the centre is known in the world and the popularity among non- resident professionals trust and whether connected to other financial centres. According to GCFI a centres “connectivity “is assessed using a “combination of “inbound” assessment locations (the number of locations from which a particular centre receives assessments) and “outbound” assessments locations (the number of other centres assessed by respondents from a particular centre). If the weighted assessments for a centre are provided by over 65 per cent of other centres, this centre is deemed to be “Global” If the ratings are provided by over 45 per cent the centre is deemed to be “Transnational”.Diversity - According to GCFI, diversity is ascertained on the widespread nature of the financial industry sectors that thrive in a financial centre.” We consider this sector “richness” to be measurable in a similar way to that of the natural environment and therefore, use a combination of biodiversity indices (calculated on the instrumental factors) to assess a centre’s diversity. A high score means the centre is well diversified, a low diversity reflects a less rich business environment”

Speciality - Speciality GCFI has identified the speciality of a financial centre to t he depth of t he following industry sectors “investment management, banking, insurance, professional services and government and regulatory”. Further “a centre’s “speciality” performance is calculated from the difference between the GFCI rating and the industry sector rating”

The GFCI 15 in Table 4.1 the “Diversity “(breadth) and “Speciality “(depth) are “combined on one axis to create two dimensional tables of financial sector profiles. Each of the 83 centres is assigned a profile on the basis of a set of rules for the three measures: how well connected a centre is, how broad its services are and how specialized it is”

There are 11 Global Financial Leaders namely Amsterdam, Boston, Dublin, Frankfurt, Hong Kong, London, New York, Paris, Singapore, Toronto and Zurich.
London, New York, Hong Kong and Singapore are the top four Global Financial Centres.Some centres have changed their profiles since GFCI 14 and these are Tokyo (Diversified to Transnational), Sydney (Transnational Centre from a Global Leader), Beijing ( Global Contender from a Global Specialist) and Milan (Global Contender from a Global Specialist)The 84 Financial Centres in the Table 4.1 of GFCI 15 are grouped under “Broad and Deep” “Relatively Broad” “Relatively Deep” and “Emerging “as compared to the 11 Global Leaders.

The GFCI 15 model also shows the stability and competitiveness of the top 40 financial centres. These centres when plotted in a variable diagram with the horizontal axis as increasing sensitivity of instrumental factors and the vertical axis as increasing variance of assessments fall into three groups namely “unpredictable” (“high sensitivity t o changes i n t he instrumental factors and a high variance of assessments .These centres have the highest potential volatility of the top GFCI centres “) “Dynamic “and “Stable” (“Centres including the top four have a relatively low sensitivity to changes in instrumental factors and a low variance of assessments”).These centres show the lowest volatility in future GFCI ratings and consistent in their rankings to the top of the GECI ratings.

The GFCI model also covers reputation by “examining the difference between the weighted average assessment given to a centre and its overall rating .The first measure reflects the average score a centre receives from financial professionals across the world adjusted for time with more recent assessments having more weight. The second measure is the GFCI score itself which represents the average assessments adjusted to reflect the instrumental factors. Table 12 of the GFCI 15 shows that Seoul, Singapore, Hong Kong, New York, Tokyo, Sydney, San Francisco, Washington DC, Boston and Wellington obtained the highest Ratings of the GFCI 15 model for reputation in descending order.According to an Investment Banker based in Frankfurt “London’s reputation as a financial centre has been gravely damaged over the past two years”

FINANCIAL CENTRES IN THE ASIA PACIFIC REGION
According to Table 6.1 of the GFCI 15 model there are 10 Global Financial Centres in the region and Hong Kong, Singapore, Tokyo and Seoul remain in GFCI top 10 with Tokyo losing the fifth place to Zurich and Seoul moving up three places to seventh. The financial centres with the rankings are Hong Kong (3) Singapore (4) Tokyo (6) Seoul (7) Shenzhen (18) Shanghai (20) Sydney (23) Busan (27) Osaka (34) Kula Lumpur (35).

OTHER FINANCIAL CENTRES
The other financial centres in the world are grouped under North and LatinAmerican, The Middle East andAfrica and Europe.

ASSESSMENT DETAILS
The assessment details for the 84 financial centres are given in Appendix 1 of Global Financial Centre Index 15 grouped under number of assessments, total average assessment and standard deviation of assessment according to the rankings. Accordingly, New York ranks number one with a score of 786 and London second with 784, Hong Kong third with 761 and Singapore fourth with 751.It is interesting to note that the only global financial centre in South Asia is Mumbai with a ranking of 76 and a score of 584.It is also noted that Seychelles which has now established close economic ties with Sri Lanka with the intention of developing tourism, air travel as well as banking is not grouped under the 84 global financial centres. However Mauritius which is an off shore financial centre ranks 63 with a score of 621

OFFSHORE FINANCIAL CENTRES
Table 9.1 of the GFCI 15 gives 11 Offshore Financial Centres with the Rankings and Ratings respectively as follows Jersey (41, 657) Guernsey (42, 656) Cayman Islands (43, 655) British Virgin Islands (BVI) (44, 654), Isle of Man (51, 642), Gibraltar (53, 639), Hamilton (56, 831) Mauritius (63, 621) Malta (67, 614) and Cyprus (79, 541).GFCI 15 records that most offshore centres have improved their ratings since GFCI 14 but have declined in their position in comparison to other financial centres.It is also noted that most of the offshore centres are mainly Island states with less population and encourage offshore banking to enhance their economy and GDP. However some of these offshore centres are also tax and safe havens where large corporate bodies register their subsidiaries for protection from taxation and liability of the principal entity in offshore investments.

GLOBAL FINANCIAL CENTRES AND SRI LANKA’S ECONOMIC COMPETIVENESS
According to the Government policy initiatives President Mahinda Rajapakse in his “Mahinda Chintanaya” has envisioned to create five regional hubs with the main objective in transforming Sri Lanka into a strategically important economic hub as its location is on the ancient Silk Route that is being revived by the Chinese Government with its friendly countries for mutual economic benefits. Accordingly, the five hubs identified are knowledge hub, commercial hub, maritime hub, aviation hub and an energy hub. It is suggested to add a sixth namely a financial hub taking advantage of the strategic location of Sri Lanka in Asia.In order to enhance the activities of the above hubs it is imperative that Sri Lanka promote its comparative advantage in transforming its financial sector into a Global Financial Sector.

Sri Lanka’s Competitiveness Index compiled by the World Economic Forum for 2014/15 has dropped from 65 in 2013 to 73 out of 144 countries and it has been reported that highly innovative countries with strong institutions continue to top the international economic competitiveness index. It is also reported that Switzerland is t he world’s most competitive and Singapore is the leader in the Asian region (Daily FT 4 September 2014.).The World Economic Forum also revealed that countries are struggling to implement structural reforms necessary t o help economies to grow and it is noted that Sri Lanka is a good example striving to be a high income nation by the year 2040 with a per capita income of US $ 22,000.

It is interesting to note that according to the World Economic Report 2014 The Global Competitiveness Report has identified t he various criteria that leads to competitiveness grouped under Basic requirements (40 per cent) efficiency enhances (50 per cent) and innovation and application factors (10 per cent) and are complimentary to the criteria identified in the Global Financial Competitive Index (GFCI) .Further the above report also identifies the Most Problematic Factors for business enhancement on a range of 1 to 5 and these factors tally well with those for the GFCI.

CONCLUSIONS AND RECOMMENDATIONS
The detailed analyses of the 84 countries ranked as Global Financial Centres using the GFCI, reviewed every six months, may point to the fact that Sri Lanka may also qualifies as a Global Financial Centre according to some of the instrumental factors and other economic criteria. However, Sri Lanka is not known as having such competitive factors as no publicity has been given in other countries especially among professionals engaged in international financial services such as investment bankers who exclusively vote for this assessment.If the Government financial policy is to promote Colombo as a Global Financial Centre, the Central Bank in close coordination with the Finance Ministry and the BOI may prepare a detailed evaluation report based on the various criteria adopted as briefly outlined in this article and disseminate such information to our missions abroad to be forwarded to the various financial institutions in those countries.

The recent news item in the local media has revealed that the BOI will encourage foreign investors and financial entities based in Sri Lanka to invest in other countries. To this end, it is pertinent to state that the Qatar Financial Centre (QFC) established by the government of Qatar in 2005 to attract international financial services and multinational corporations to grow and develop the market for financial services in the region and this centre has been a great success. QFC consists of a commercial arm, the QEC Authority and an i ndependent financial regulator the QEC Regulatory Authority. It also has an independent judiciary which comprises a civil and commercial court and a regulatory tribunal.The government of Sri Lanka could also develop Colombo as such a centre for providing competitive financial services in the region especially in south and south East Asia.

(Please note that this is a very short and summarized version of the Report on GFCI 15 which can be downloaded for a detailed study from ‘Error! Hyperlink reference not valid’. relevant data and information contained in this article are from GFCI 15 compiled by the Z/Yen Group Limited is hereby acknowledged with thanks and note that such data and information are updated by the Z/Yen Group every six months)