Our financial services industry – anchored by banking, but encompassing insurance, shipping, private equity, hedge funds and related professional services such as law and accountancy – is vital to the UK’s economy. According to City lobby group TheCityUK, around 1 million people work in financial services – more than two thirds of them outside London. Belfast, Edinburgh, Cardiff, Exeter and Leeds are all fast-growing financial hubs. Professional services, such as law, accountancy and consultancy, account for a further 900,000 UK jobs. Moreover, financial services touch every aspect of our lives, from our bank accounts to mortgages and car insurance. Each year, we visit the UK's 10,500 bank branches, whilst 46 million people use telephone banking and 33 million use online banking. Financial services also make a hefty cash contribution to the Treasury, accounting for 11% of the UK’s total income tax and 15% of corporation tax take. In 2010, financial services contributed over £53bn in tax revenue – more than any other sector. It's not surprising then that the UK is a world leader in financial services. London was ranked #1 in the Z/Yen Group’s 8th Global Financial Centres Index in 2010, and the UK leads the world across a range of products ranging from cross-border bank lending and FX to carbon trading and Islamic finance.
Despite this success, it’s not fashionable to talk up financial services – quite the opposite. In his keynote speech on the economy in January 2011, the Prime Minister cited tourism, green energy, pharmaceuticals, advanced manufacturing and aerospace as the five “industries of the future” that would drive the UK's economic recovery, ignoring financial services. Whilst Cameron said he didn’t want to make “banking weaker or the City of London smaller”, he only mentioned the Square Mile once. CityAM described this as a “slap in the face” for financial services. Elsewhere, criticism of banks, bankers, bankers’ bonuses, and the financial services sector in general are rife.
What should be done? Answer: A new vision for the financial services sector. A fresh approach. In conversations I’ve had with peers – young professionals in their 20s building a career in the City – it's obvious that Generation Y is keen to move on from the financial crisis. Ours was not the generation that caused the crisis or tarnished the City's image but we do have to live with the consequences. So it's up to us to come up with a new narrative. What do we want the financial services industry to look like in 15, 20, 25 years' time? Einstein famously said “We can't solve problems by using the same kind of thinking we used to create them.” He was right. The sector must put into action Machiavelli's maxim of never letting a crisis go to waste. There should be no sacred cows, no financial orthodoxy so entrenched, no conventional thinking so ingrained that it should ever stand in the way of the change that the financial services sector needs, which Generation Y demands, and which the country deserves.
This new approach must change the public perception that financial services are a values-free zone. Our markets should be free – but not values free. In our families, workplaces and communities, we celebrate people of integrity who work hard, treat people fairly, take responsibility, and look out for others, especially when they put them in harm's way. If these are the principles we live by in our daily lives, we must also use them to guide and govern our economic life too. What makes for the good society makes for a good economy, and these principles should underpin any new vision for the financial services industry. Where such principles are breached, there should be clear sanctions imposed on transgressors. When figures associated with the financial crisis are thought to have escaped censure by their own industry, the industry loses credibility because it has – and is seen to have – no mechanism to enforce the values it claims to holds dear. That has to change.
On the relationship between banks and the customer, it may also be time for a new approach. Greg Fisher, Chief Economist at ResPublica, is a key proponent of "subsidiarity" – devolving power and responsibility to the lowest effective level – as a means of restoring values-based, community-centred banking. He cites regulation as an example, and argues that combining centrally-defined regulatory principles with greater devolution of decision-making power to local level will bring financial services closer to the people, rebuild the relationship between banks and customers, and ensure regulation is not applied in a vacuum. Bringing decision-making back down to earth empowers, for example, the local bank manager to make decisions about lending to local businesses instead of a computer in an ivory tower. Regulations dreamt up in Whitehall and Wall Street should be brought to life on main street and the high street. The UK – and the EU – have massively over-centralised regulatory systems which failed to protect us during the recent crisis and which often reduce well-intended laws and values into ephemeral and abstract concepts. That has to change too. This goes against the grain of globalisation, but if it makes our financial system more sustainable, resilient and respected by customers, perhaps it's worth a try?
A new vision for the financial services industry should retain the UK's hard-earned reputation for excellence, innovation and ambition. But Generation Y demands more: an industry that it – and the rest of the UK – can be proud of. An industry that is seen to be a part of society (not apart from it), that is trusted, guided by a strong moral compass, and where all the participants are as vigorous in honouring the responsibilities of success as they are in chasing the rewards of success. As 2010 drew to a close, the Guardian predicted that over the coming years "the popular revolt against bankers will become impossible to resist". It's up to the financial services industry – and Generation Y in particular – to chart a new course, shape a new vision, and prove them wrong. Are we up to the challenge?
Alan Mak is a solicitor at Clifford Chance LLP in London. He writes in a personal capacity.