The Long Finance Forum: Modelling financial services in 2050

Source: Long Finance Forum

The L3F (Long Finance Forum of Futurists) today released details of its "In Safe Hands? The Future of Financial Services" report.

The report is being published by Long Finance as part of the Financial Centre Futures programme sponsored by Qatar Financial Centre Authority. This report is the result of a scenario planning exercise conducted by internationally recognised futurists and key figures from the global financial services industry. It plots a series of possible future scenarios for the global financial services market, and considers the future of financial services over the next 40 years. It also identifies a number of surprises which come out of the analysis, ranging from questions on the size, location and role of financial services, a challenge for future risk assessment of insurance, to a change in the nature of assets which will be valued.

The team built on the work in Beyond Crisis 1 to identify macro global factors affecting the world by 2050:

The global population will grow to nine billion and get older, with most of the additional people in Africa and Asia. This will cause major shifts of economic power, causing turbulence as political changes follow. This might be thought helpful to financial services which manage risk, but the new centres of power may not share the value systems of the west. This raises questions over the future of international governance of finance.
Technology (info, cogno, bio, nano) will continue to introduce changes in personal capacity and lifestyles, while ICT will underpin much of society as well as commerce. The effect of this may be to decrease the number of people involved in financial services as companies develop new ways of doing business designed with ICT in mind. Considering the long term implications of advances in analytics, the basis of life insurance - sharing risk - is challenged by advances in genomics and by augmentation, and the basis of property insurance risk pooling may be affected by advances in weather modelling and forecasting.
Ecological, energy and environmental limits will be tested or breached as the population ie population increases, the percentage of the population living in cities approaches 70 percent and the new middle class eats meat, uses cars, refrigerators and electronic goods and travels for pleasure. We envisage that by 2050, a primary role of the financial services industry could be to manage ecological, environmental and energy resources - rather than simply investing in commodities. As the population of the globe hits 9 billion people, the assets people value today could have been threatened by restrictions on liberty such as a permit to live in a city state or to reproduce.

Within this world, the team developed four possible futures for the global financial services industry;

Second Hand - the world and financial services are recognisable from today, though most financial services will be largely automated, the current players will have largely disappeared, and many of the new players will be based outside the OECD countries. Land based assets and permits for citizenship or reproduction are highly valued.
Visible Hand - the world attempts to tackle global financial systemic risks through Washington consensus methods and faces increased volatility. However the aim of a homogeneous global culture (even if achievable at all in the short-term) is not likely to be sustainable until 2050. Gold is thought to protect best against volatility.
Long Hand - financial services are mostly organised around communities of affinity, spanning countries and regions. Assets are allocated by the market within a community and intermediated by technology.The most highly valued asset classes vary with the community: they may be intellectual property and mechanisms to insulate affinity groups from the effects of population pressure or land-based asset restrictions.
Many Hands - financial services are mostly organised within city states, which differ wildly in their brand and values. Permits to live or operate in desirable city states are highly valuable assets. This could of course be implemented through high property prices rather than a state system.

Gill Ringland, author of the report, commented, "The project has brought together futurists and experts across the industry. Our consensus is that as the UK and United States lose influence and power as we head into a world dominated by today's emerging markets, there is a long term risk to London's financial services leadership. However, one scenario brought out the potential to leverage its multicultural workforce of over 270 nations and consolidate its position as the melting pot for global financial services

Today, the financial services industry manage capital and debt, but the macro global shifts lead us to believe that The City of London may have to transform from a financial centre that merely trades stocks, bonds and commodities to one that manages their underlying asset base. This may seem an extreme leap from today's world, but, what the last three years should have taught us is that we cannot predict the future by looking backwards. The L3F provide a series of future scenarios that countries and businesses can assess their thinking strategies against - which could be invaluable in the turbulent world we live in today."

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