Just about any human enterprise bears some element of risk. There’s always something that could go wrong. Or, to put it another way:
“The game of life is a game of snakes and ladders,”
as Andy Haldane, CEO of the Royal Society of Arts, wrote in a recent article. But a decade and a half of shocks - financial, geopolitical, medical and technological - have helped generate “a phobia of snakes and an acute mistrust of the ladders. Both are understandable but both are self-defeating.”
As the world grapples with the uncertainty created by those shocks, the UK finds itself at a pivotal moment, with its position on the global stage largely determined by its response to these challenges. While the natural instinct may be to retrench and retreat, history has shown that such an approach is not only ineffective in protecting against harm but also limits our collective ability to flourish. The UK has a rich history of innovation and resilience, but to maintain this legacy, we must be willing to be brave and strike a balance between caution and endeavour.
One of the key elements of the UK’s competitiveness comes from its leading financial and related professional services industry, which contributed £254 billion in 2021 and employs almost one in every thirteen people across the country. The industry's success is not limited to London; regional contributions are significant, with around half of the £135 billion in exports originating from outside the capital.
But competitiveness, the focus of TheCityUK’s Annual Conference this year, is a constantly moving target. It requires maintenance and depends heavily on two supporting factors. First, an interconnected and internally aligned system of policy, regulation and supervision that gives all stakeholders a measure of proportionality and certainty. And second, room for industry to experiment and innovate, to attract the best talent and keep pace with an accelerated rate of global change.
To harness the full potential of the UK’s financial and related professional services industry, regulatory policies need to strike a delicate balance between protecting consumers from harm while allowing new ideas to flourish. Anything that is new or different can feel “riskier” than existing solutions, simply because it is less well known. But in fact, status quo risk is often the most overlooked risk of all. Avoiding change may feel safer than taking active decisions, but not if it leads to a significant opportunity cost, such as cash savings that are eroded by inflation or a wider economy starved of the investment it needs.
As a result, it is crucial to educate stakeholders about the trade-off between different risks and the impact that could have on their long-term financial security. For example, both fixed rate and floating rate mortgages have advantages and disadvantages associated with them. The ultimate reward is to own the house of your dreams but choosing the wrong one could make the dream harder to realise. Likewise contributing to a pension or an ISA or paying off a credit card bill from your monthly salary may all be good things to do – but the riskiness of choosing one course of action versus another will lead to a different reward profile depending on your own personal circumstances.
If we attempt to strip all risk from the system, we will remove from people the opportunity to make the very personal decisions based on their own personal trade-offs to achieve the outcome that they themselves want. Stripping all risk will ensure that far fewer people reach their goals, while acknowledging that in allowing people to make those trade-offs, some may inevitably get them wrong. And an economy where cash savings are excessive will see slower growth and less job creation than one in which that cash can be used to invest in productive assets.
Our system is shaped by rules and defined by behaviours. It is very hard to behave creatively, expansively and boldly in a system shaped by timidity.
The recent proposals on enforcement investigation disclosure take this one step further. Every serious business in the financial sector wants wrongdoing rooted out across the industry. They want bad actors and repeat offenders removed expeditiously and to face the consequences of their actions. But not every enforcement investigation concludes that there is evidence of wrongdoing. In fact, two thirds end in no action being taken at all. Premature disclosure for those firms could unnecessarily damage them, the wider industry, and the individuals concerned. The fear of it will certainly lead to good firms being more likely to stifle innovation, and ultimately damage the UK’s competitiveness internationally.
The UK is blessed with a world-leading centre for financial and professional services, a bustling and creative business sector, and a policymaking and regulatory system that has been replicated in many countries around the world. However, to remain competitive, we must continuously improve and adapt to the increasing speed of change. And not let our fear of snakes stop us from climbing the ladder when it presents itself.
