Royal Society of Arts Journal - Article

I was recently invited to write an article for Royal Society of Arts Journal - Green Economy - September 2015 edition. 

This was a great opportunity to share my learnings of leading the Finance Innovation Lab and showing how we have used complexity science in designing and implementing our strategy for change.  


This article was originally written for and published in The Royal Society of Arts (RSA) Journal – September 2015.

 The Finance System – It’s Complex

By Jen Morgan and Chris Hewitt of The Finance Innovation Lab

Cast your mind back to 2008. We sat at the table, poured our morning coffee and read the headlines: “Banks hit by $5.9bn fine for foreign exchange rigging.” A few weeks before it had been “Deutsche Bank fined £1.7bn for LIBOR failings and misleading the regulator”. And before that, “HSBC bosses very ashamed and humbled as bank faces criminal probe threat over its tax dodging”. We may have been shocked but we had grown to expect such news. We were surprised, yet unsurprised, as to how quickly this news came and went. By lunchtime, the headlines were usually off the front page of websites and caused little in the way of political comment. In fact, in spite of the huge impact of the 2008 financial crisis, we seem to have accepted this dysfunctional financial system as a force of nature, rather than a market shaped by human values and intention.

Finance is a complex system. One of the reasons that it has not been dramatically reformed since the crash is that its very complexity has made it hard to sustain public discourse. Citizens, politicians, journalists, civil society and most people who work in the financial services sector –

apart from the few who have exploited it – are intimidated by this complexity. As a result, we feel ill equipped to advance the sort of systemic solutions that are required. But in order to create an economy that will enable us all to flourish, it is essential that we understand the truth: that we are all part of a complex interconnected financial system. Embracing this fact can empower us to take new and diverse approaches to change that will lead towards a financial system that is democratic, responsible and fair.

To do this, we need an appetite to deal with the root causes of this serious dysfunction. That requires new, long-term and systemic approaches to change; fresh approaches that The Finance Innovation Lab and a growing number of organisations are pioneering. Established in 2008, we empower positive disruptors who are enabling a democratic, responsible and fair financial system.   We work at multiple levels to connect people who seek to change the financial system, as innovators and entrepreneurs, civil society advocates, or ‘intrapreneurs’ within their own organisations. Our approach draws heavily on systems thinking, complexity science, values-based leadership and action learning.

Understanding Complexity

It is understandable that our society, our government and UK plc have failed to transform the financial system. For the most part, we are trying to fix a problem with mind-sets and strategies that aren’t fit for the job. We have commonly seen the finance system through a mechanistic lens of solid hierarchical structures, with efficient intermediaries that maximise financial returns. And similar to a mechanic, we think we can ‘fix’ the machine with the existing tools in our toolbox. Common tools proposed include ‘getting the regulation right’ or ‘encouraging challenger banks and letting competition and the market do the rest’. But time and time again, we find ourselves trying to deal with the never-ending breakdowns and broken parts.

Many of us are now starting to wake up to the reality that we are working with a complex and dynamic system rather than a machine, and that responses need to be designed accordingly. Andy Haldane, Chief Economist at the Bank of England has been a pioneer in helping to reframe how we see finance. In a recent speech at the Lorentz Conference on Social Economic Complexity, he explained:  “Modern economic and financial systems are perhaps better characterised as a complex, adaptive ‘system of systems’. Global economic and financial systems comprise a nested set of sub-systems, each one themselves a complex web. Understanding these complex sub-systems, and their interaction, is crucial for effective systemic risk monitoring and management”.

So what exactly is a complex system? Complex systems, such as social and natural systems, all have their own unique intention and purpose. They are dynamic and formed by relationships. They are emergent and unpredictable. They are non-linear and the whole often behaves very differently to the sum of the parts. They have many feedback loops and information flows around the system. They are adaptive, constantly learning and evolving.

Purpose, Values, Power

How can we best catalyse change in complex systems like the UK financial system? In her seminal thinkpiece 12 Leverage Points to Intervene in a System, Donella Meadows, systems thinker, futurist and author of Limits to Growth, maps 12 leverage points of how to catalyse change in complex systems. The most influential leverage points include: tackling root issues such as purpose and values, shifting power dynamics; and changing the structure of the system such as the rules and standards; and opening the feedback loops of information.

How does looking at finance through the lens of complex systems shed new light on the challenges we face? Firstly, the predominant purpose of the finance system has become self-serving rather than serving ‘the whole’ (that’s us and our environment). There has been little meaningful conversation about the purpose of the financial system, either in its current form or its aspirations. It presents itself as a sector that is maximising profits for the UK economy. But others might feel it should primarily serve the needs of the rest of the economy and society. Before we start redesigning the system we need to ask this question about purpose.

Secondly, our current financial system is underpinned by values and cultures that are extrinsically motived such as competition, hedonism and conservation. Research from the Public Interest Research Centre (PIRC) shows that extrinsically motivated values are less open to change and reinforce individualism. the ‘self’. Yet as our economies and societies become more interconnected, we need our institutions to display values that are intrinsically motivated such as kindness, creativity and responsibility. So a pertinent question becomes: How do we cultivate a system that promotes intrinsically motivated values?

Thirdly, the system is controlled by a powerful minority who hold the vested interest and is not accessible to those who have an interest in creating a more human-centred financial system. The UK finance sector is the biggest UK lobbyist in the EU. This is a powerful force that is holding the existing system in place. It is preventing more radical and deep rooted change to emerge. We need a new enabling power that serves society and the environment.

Envisioning a Human-Focused Finance System

In 2008, the anger of society at the consequences and causes of the financial crash was given a powerful voice by the Occupy Movement. This discontent resonated across whole swathes of UK public sentiment. But what was missing was any kind of strategic and systemic approach on creating the long-term enabling conditions for change. With no real strategy in place, any kind of public dialogue over the future of the finance system was quickly swamped by the complexity which served to keep the vast majority of fearful policymakers, public and media disconnected from the system, and thus unable to be open to see how change could happen.

Since then, however, there has been a surge of enthusiasm from outside the traditional finance sector, partly spurred by new technology, which has sought to deliver some financial services in a way which is more connected to people. Peer-to-peer lending, crowdfunding and values-based banks have flourished where the high-street banks have continued to stagnate. New products, such as climate bonds, have been developed to stimulate long-term investment in socially and environmentally useful projects, such as sustainable energy infrastructure.

At the same time, civil society groups, such as The Finance Innovation Lab, ShareAction, New Economics Foundation (nef) and Positive Money have been quietly co-creating a vision of a finance system that is democratic, responsible and fair. This vision has four  Leverage points for change.

 First, a banking system that has a diversity of business models, offering more genuine and fair competition for savings, business loans, mortgages, payments and support in financial management. The globally focused, shareholder-owned high street banks have failed to deliver this. We need more mutuals, credit unions, innovations in payments, locally focused banks, peer-to-peer lending and other creative ways of providing these services.

Second, an investment and capital market that is shaped by the long-term interests of savers, from whom most of the capital originates, in the form of pension funds, insurance or other savings. Our policy framework must reward long termism, transparency and valuation of social and environmental risks. It should, correspondingly, penalise excessive speculation, extraction of rent through hidden fees and a discounting of long-term risks like climate change.

Third, a system of monetary policy intervention, which takes fully into account the social, environmental and economic consequences of those decisions. This would require that we move away from seeing monetary policy as a technocratic activity free from ‘interference’ from politicians, towards one where there is real public and democratic debate and oversight into the use of such tools.

And lastly, active encouragement for innovation and creativity in financial services that increase accessibility and transparency, provide benefit to the whole of the economy and are socially useful. This will require regulation to be more flexible, with fewer barriers to entry, but also placing the responsibility on the innovators to prove their worth to the rest of us.

This transformed finance system should have an explicit purpose to serve society, the environment and the wider economy. This will require leadership from government and, within finance institutions themselves, a rediscovery of the ‘service’ in financial services. We must not continue to see the sector as an ‘industry’ whose profits are a key driver if the UK economy. Research from the Bank of International Settlements, the global ‘Bank’ of Central Banks, shows that if a financial sector becomes too big as a proportion of a national economy, it starts to damage the rest.

The values of its participants will need to reflect that new purpose, both as an explicit intention and in response to market and policy pressures. Competition will increase from innovators who are not afraid to use greater transparency as a means to attract market share and reduce costs to consumers, rather than as something to withhold in order to protect profits and create barriers to entry. Those who cling to the latter will look increasingly outdated and irrelevant.

A more diverse ecosystem of market players will also help to dilute the power of vested interests to shape policy in their favour. One of the roles that The Finance Innovation Lab has played is to bring innovators together with policymakers, in order to build trusting relationships and host in depth conversations about creating a more diverse market. As part of our strategy, in 2012, we held a summit with peer-to-peer lenders, the Treasury, European Commission representatives and others to focus on why and how the new sector should be regulated. We have also held workshops with senior staff at the FCA and Bank of England focusing on the needs of new business models and removing barriers to entry. All of this, combined with the work of many others, has resulted in new regulation for crowdfunding and other models of financial disintermediation, building the market for democratic finance.

Accelerating change
Changing complex systems is a long-term game and we need to build our change strategies to reflect this context. The Finance Innovation Lab has established the infrastructure for systems change that will enable collective impact at multiple levels in the financial system. This infrastructure allows for the ongoing experimentation and practical application of new approaches, builds capacities and cultures of creativity, learning and evolving, and cultivates strong communities of influence.

What we have learned in the Lab is that there is no ‘one’ solution and that change takes time. This is especially true when working with deep-rooted issues of purpose, values and power. Multiple approaches of change across the finance system are needed, including amplifying a narrative for finance, evolving approaches of current mainstream practices, advocating for structural reform and cultivating the niches of positive disruptors[A1] .  Positive disruptors who are all actively working towards ‘repurposing finance’.


Ultimately, we are all part of the financial system. There is no system ‘out there’, separate from us. How we choose to relate to money and our finances will directly influence how effectively we can scale change beyond ourselves. Will we choose for finance to be an enabler of a human-purposed economy, or will we choose for finance to remain the dominant force in a self-serving economy? Seven years after the start of the crisis, with banking scandals still hitting the headlines, there is no better time to make your choice.