over half of this is accounted for by open - ended funds, most of which promise daily liquidity to their investors. such funds have generally been stable in times of stress – during the crisis they experienced relatively modest outflows. unlike the banking sector they are not in the main highly leveraged. but they have grown markedly since 2008 and, with the search for yield, have become active in more illiquid and volatile markets while still in the majority of cases promising daily liquidity to their investors. we do therefore have to ask not just whether individual funds are properly managed and can cope with redemption pressures. we also have to ask whether this increasingly important element of market - based finance, as a whole or in large part, would under stress transmit pressure to the rest of the system, for example, through fire sales of assets. and whether there needs to be a stronger link between a fund ’ s promise of liquidity to its investors and the nature of the assets in which it is invested. the financial stability board and iosco are now taking forward important work to address these broader potentially systemic risks. this issue illustrates more generally that as markets innovate and market - based finance develops we need to remain very alert to possible systemic implications and keep our eye on the management of risk. the uk exit from the european union i have discussed the fundamental challenges around ethics and risk that are crucial to building societal trust in and support for modern, international financial markets. i am however conscious that i am the guest tonight of the association for financial markets in europe and the clue is in the entire name. i therefore should perhaps say a few words on the challenges for europe ’ s financial markets that may be posed by the exit of the uk from the european union. we do not yet know what arrangements will govern the trade of financial services and the integration of financial markets between the uk and the eu once the uk has completed its exit. that will be one of many issues to be determined by governments in negotiations over the coming years. nor do we know how the financial sector in the uk and elsewhere in europe will respond to the process and outcome of those negotiations. there are many possible answers to both questions. what i think is clearer is that this is not a zero sum game. all speeches are available online at www. bankofengland. co. uk / publications / pages / speeches / default. aspx it is certainly possible – indeed some would say likely – that some wholesale financial market activities currently

##isation restarted are now each worth around $ 12 trillion. as financial globalisation has grown, so has the tendency for activity to concentrate in financial centres. concentration, as paul krugman observes, is the most striking feature of many industries ’ economic geography. labour market externalities mean that larger concentrations allow for a more efficient matching between employers and employees, and encourage the formation of a pool of specialised workers. concentration increases the scale of the demand for intermediate inputs encouraging the development of more specialisation in the suppliers of those inputs. and concentrations facilitate the exchange of knowledge and skills. given the importance of access to specialised labour, to intermediate inputs and to knowledge, it is not surprising that financial services are subject to very strong pressures to concentrate activity in key centres. see world federation of exchanges h1 2016 market highlights. the securitisation figure covers us and european securitisation markets. all speeches are available online at www. bankofengland. co. uk / publications / pages / speeches / default. aspx as a knowledge intensive service industry, the financial sector depends crucially on the availability of specialised labour. complex financial service firms rely on access to a large pool of skilled workers. for example, 390, 000 people work in financial services in london and 330, 000 in new york, the two largest financial centres. financial services have an increasingly complex production chain that depends on the availability of specialised intermediate inputs of both financial and non - financial services. a modern financial market transaction may be the simple purchase or sale of a single financial asset. but it is more likely to be a complex chain of transactions involving a range of financial markets and intermediaries. one can see this complexity in the value chains of financial services. in 2014, every £100 of gross value added created by the financial services sector in the uk relied on £23 of inputs from other financial services firms and £29 of inputs from legal, accounting, consultancy, information, it and business support services. knowledge and information is a critical input to financial services – perhaps more than any other industry. quick access to information can lead to better decisions about the allocation of capital. information about successful innovations in financial firms ’ production processes can lead to more efficient production across the industry. in addition to these general forces that lead to industrial concentration, there is for financial services the particular importance of market liquidity and the ability to trade efficiently, which depends in turn on a large number of market participants wanting to trade in a particular venue.