Can disruptive policies help deliver a sustainable finance system?

Over recent months The Finance Innovation Lab has been interviewing experts and key stakeholders to find the most promising policy ideas that could overcome the biggest barriers to creating a sustainable finance system.

On March 23rd we’ll hold a workshop to test some of the mapping work we have carried out and identify some priority policy areas to work on in the next six months. We will also be publishing more findings on the F-Lab website, on the blog and elsewhere.

The ideas are varied, come from individuals and orgainsations with sometimes opposing perspectives, and are at different stages of development.

What we hope they share, however, is the property that if they were followed through by policymakers they could create a degree of transformation in the finance system. Themes coming through are the need to reconnect the long term needs of savers and pension holders, with the equally long term needs of productive businesses. The increasingly short term finance system currently gets in the way. This could be changed through a more sophisticated interpretation of the fiduciary duty as advocated by Fair Pensions and others. In banking, the need for a more diverse sector with different ownership models, as a way to reduce the dominance of the large universal banks whose risk taking became so dangerous in 2007 is advocated across the political spectrum. The most striking advocate being Andy Haldane from the Bank of England. Think tanks on left and right are looking for ways to emulate the local and regional savings bank network that has kept German SME lending bouyant all through the credit crunch.

Whilst big banks might need more regulation and controls, perhaps we should be looking to reduce red tape and regulation for the new finance innovations, such as peer to peer lending, which are giving savers a better deal and making direct connections with those needing loans.

Underlying this is the need for far greater transparency in the financial services sector which is way too complex for most people to understand or have the time to do so. If the public had a clearer understanding of the proportion of their savings which were paid in management fees or, how much of the balance sheet of their high street bank went on speculative trading, rather than lending to productive businesses, then it might return some of the power back to the customers of financial services.

And there are lots more potentially powerful policy ideas being worked up by innovative thinkers. Over the next few months, The Finance Lab will be taking the best of these, helping create collaborations to develop ideas further and take them to the heart of the policy making community. There are a lot of shared questions about how the finance system got it wrong, and the time is ripe for the new ideas to help get it right.