The Regulatory Compass

We are living through a period of major political and economic uncertainty. While Brexit and new global forces reshape our economy, the rise of new technologies could set our financial system on the path to greater fairness, responsibility and democracy – or the reverse.

Do we cling on to the status quo, with all its shortcomings? Or do we seize the opportunity to step back and ask ourselves what kind of financial system we want – and how we can regulate for that?

Today the Finance Innovation Lab launches our landmark publication The Regulatory Compass: Towards a purpose-driven approach to financial regulation.

The report, which was funded by Barrow Cadbury Trust, draws on the experiences of the Innovation Lab’s community of purpose-led innovators to argue that rather than being ‘purpose-neutral’, regulation is often designed around the large, shareholder-focussed firms that dominate the market. We explore how regulatory assumptions hinder financial firms focussed on social and environmental impact, and we identify three conceptual fallacies that limit the ability of regulators to embed social purpose in their approach.

UK regulators and the policymakers who instruct them need to develop a more explicit and more holistic concept of what social purpose means in the context of financial services. Understanding how the financial system is delivering on this ultimate purpose requires regulators to have new mandates, rooted in democratic consultation on the purpose of finance; a different mindset, embracing fully human-centred regulation; and new metrics that assess how well the financial system and financial firms are fulfilling their ultimate purposes.

The Regulatory Compass aims to open up a new debate about the future of financial regulation in a changing world. It offers an important message not just to regulators and policymakers, but to all who want to make finance serve a purpose beyond profit.

Download the executive summary here or the full report here.