The City of London is seen as a ‘crown jewel’ of the UK economy, central to the Government’s plans to promote economic growth and competitiveness. At the Financial Inclusion and Markets Centre (FIMC) we fully support  the need for a successful finance sector that works for the real economy, environment, and society. But, we question the central role given to finance and how growth is being pursued.  The current deregulation agenda and creating pro-growth conditions for the City risks reversing the progress made in making the financial system more resilient post 2008 and cleaning up finance after the litany of scandals that left a legacy of mistrust. Policymakers risk forgetting the lessons from history, that: the UK is still exposed to the ‘too much finance’ curse; and allowing finance to become too dominant is counterproductive to creating sustainable, equitable growth shared across the UK regions.  The job from making finance work is far from done yet the operational independence of the financial regulators - a key strength of the UK financial system - is compromised due to pressure from government and industry lobbies to promote finance sector growth and competitiveness. Finance industry lobbies exercise undue influence over policymaking. No wonder we’ve seen a series of deregulatory measures favouring the industry. The mainstream banking system may well be safer, but poorly understood risks have shifted to the shadow banking system. The UK life insurance industry which manages huge sums of our pension money looks much stronger than it really is due to a financial conjuring trick which allows insurers to create artificial capital to inflate balance sheet strength. The Financial Conduct Authority (FCA) has done a commendable job improving market behaviours. But, there is much more to be done to stop finance extracting huge value from our pensions, investments, and savings and using big data/tech/AI to sell products and services designed to exploit consumers’ behavioural and psychological biases. 

"The Financial Conduct Authority (FCA) has done a commendable job improving market behaviours. But, there is much more to be done"

Despite efforts to clean up the system, estimates put the scale of money laundering impacting the UK annually at hundreds of billions of pounds. Major efforts have been made to tackle financial scams but millions are still falling victim each year.  The extent of financial exclusion and discrimination due to risk profiling is actually shocking. The greater application of big data/tech/ AI risks exacerbating exclusion and discrimination. Contrary to the self-congratulatory claims by the finance lobbies, the City is poor at allocating financial resources to the most economically and socially productive activities. Financial market short termism still hinders the ability of real economy firms to obtain the sustainable long term finance they need. Financial institutions are prohibited, quite rightly, from misselling, insider dealing, facilitating money laundering, and financing terrorism. Yet, even though climate change is the existential threat, the City continues to be allowed to finance, at scale, economic activities that harm the environment.

"The economy and society is increasingly financialised"

The economy and society is increasingly financialised. Scaremongering about public finances is exploited to create new opportunities for the City to finance critical physical, green, and social infrastructure - a new private finance initiative (PFI). Households will pay a private finance penalty to meet the returns and high fees demanded by financial institutions. The Government even intends to take powers to mandate pension funds to invest in private assets, which have been criticised for being high risk, with very high fees, and poor standards of governance. Moreover, we (taxpayers) are providing corporate welfare in the form of ‘de-risking’ to incentivise private finance. Socialising the risk, privatising the rewards. Or, in plain terms, ‘heads finance wins, tails we lose’. There appears to be no coherent strategy for determining how, where, when, and on what terms we should deploy state and private finance to the greatest effect to support sustainable growth.  Just as great store is placed on the City driving growth, the Government and regulators are prioritising the UK becoming a global leader in fintech and AI. The adoption of AI in financial services is substantially outpacing that in other economic sectors. 

"The adoption of AI in financial services is substantially outpacing that in other economic sectors"

The fusion of finance and tech/ AI undoubtedly creates significant opportunities and potential benefits for the UK economy and financial consumers. But, this fusion also creates major risks across the financial system whether it is risks to financial stability, enabling market manipulation, or increased exploitation of and discrimination ag...