Revitalising the financial sector: A call for innovation at IQ-EQ Crossroads

Revitalising the financial sector: A call for innovation at IQ-EQ Crossroads

By Emma Crabtree, Group Chief Commercial Officer, IQ-EQ                                                                                                                                       

The financial sector has witnessed several significant ‘Black Swan’ events that have shaped its evolution over time. But have efforts to future-proof by learning from previous mistakes been enough? Our keynote speakers at IQ-EQ Crossroads – financier and campaigner Baroness Helena Morrissey DBE and eminent economist Roger Bootle – argued that the sector needs to reembrace an entrepreneurial mindset if it wants to fortify its talent pool and futureproof against crises.

When 66,000 students and graduates were asked in 2023 which employers they most wanted to work for, financial services firms were notably absent from the top 10. Despite its reputation for high starting salaries, the sector’s first entrant on the ranking of most desirable companies came in the form of JPMorgan, in 11^th place.

The financial sector’s reputation among the young was one of the themes picked up on by Baroness Helena Morrissey, a keynote speaker at IQ-EQ Crossroads, held in early May at the iconic Gherkin building in London. Considering the event’s overarching theme – ‘is the financial services sector future proofed?’ – Baroness Morrissey argued that this question is inextricably tied to whether London’s financial services firms can continue to attract the best and brightest.

Regulation, while essential for the healthy functioning of markets, can sometimes have unintended consequences in that it deters innovation and entrepreneurialism to a disproportionate degree. Today, so much focus is given to regulation, such as adhering to Mifid II’s 1.7 million provisions, that there is little energy and appetite left for true innovation, Morrissey argued. This reduces the sense of personal accountability and ‘skin in the game’.

Fellow keynote speaker Roger Bootle laid out how each market cycle has had its own distinct features, which can be misinterpreted in the aftermath of financial calamity. These misinterpretations then go on to inform the subsequent regulatory environment. He underscored the importance of reflecting on failings, to prevent repeating past mistakes. The Great Depression, for example, is now understood as having been fuelled by errors in monetary policy, though at the time, the Great Crash of 1929 was seen as evidence that the financial system was inherently unstable and needed to be tightly regulated.

Move forward to the 1990s, and central banks had become heavily focused on a specific inflation rate, setting the stage for the next error in which low interest rates contributed to a bubble. Mr Bootle emphasised the need for a balanced approach to regulation and innovation, pointing out that ironically it was standard, low-tech property lending which ignited what has come to be known as ‘the GFC’ or global financial crisis – an event that still looms large over the “risk off” financial services culture today.

Mr Bootle said that ironically “true Black Swans” come from sources and events so unexpected, that little can be done to prepare. He raised concerns about AI-driven market dynamics and the potential for calamitous trading events due to reliance on historical data that may leave AI models powerless in the face of future anomalies. Nonetheless, he believed that in the short-term AI would enhance productivity and economic growth, while buoying the US’s global supremacy.

Baroness Morrissey, whose 30% Club became famous for its pragmatic approach to boosting the number of women in senior positions, said the UK had first made impressive progress on gender balance without legislative intervention. At its founding in 2010, it found support from the chairs of FTSE-listed companies, who were mostly men. What may feel like stalling progress – just 12% of fund managers are female – can be partly explained by women being put off by high profile incidences of harassment, sexism, and gender pay disparities. However, Baroness Morrissey also highlighted that she believes the diversity and inclusion movement has “shot itself in the foot”, with many initiatives under the DEI banner seeming to tolerate only one viewpoint rather than encouraging diversity of thought. She suggested that the DEI agenda has often seemed to exclude white, heterosexual, middle class men. We are in danger, she said, of “replacing one form of discrimination with another.

Baroness Morrissey said that when she started her career it was challenging often being the only woman in the room. However, there were also endless opportunities to learn and freedom to make things happen. She said that re-embracing innovation meant an ongoing acknowledging that no one individual or group has a monopoly on good ideas. And while we all acknowledge the vital role of regulation; more does not always equal better, she said.

It is clear from our speakers that striking a balance between robust regulation and a culture of innovation is necessary – and the financial sector should be alert to emerging risks, as well as drawing on the lessons of the past. In doing so, firms can maintain their competitive edge, attract top talent, and ensure they remain resilient and relevant in an ever-evolving market landscape.