Lack of risk taking in the City threatens economy, warns Bailey

ANDREW BAILEY has warned that a lack of risk taking in the City is threatening to harm the UK economy amid concerns that millions of pension savers are suffering from underperforming funds.

The Governor of the Bank of England said yesterday that regulatory reforms were needed to encourage greater risk taking by finance companies to turbocharge the Square Mile.

Speaking at The Wall Street Journal CEO Summit, Mr Bailey said: “You have got to stimulate risk taking and productive finance and think about how we regulate in a way that encourages that … if we don’t then I think we have got a problem on our hands.”

The comments are likely to raise eyebrows in the Square Mile, as Mr Bailey has been one of the main architects of the UK’S post-financial crisis regulatory regime, having led all of Britain’s top City regulators.

While chief executive of the Bank’s Prudential Regulation Authority, he spearheaded a campaign to force Britain’s biggest banks to hold more capital in the wake of the 2008 crisis. In March, he also sounded the alarm on postbrexit reforms intended to bolster the City, saying they will increase the risk of insurance firms going bust and potentially leave taxpayers with a multibillion-pound bill.

City grandees warned earlier this week that London was falling behind rival financial centres as a result of its risk-averse pensions industry.

Sir Nigel Wilson, chief executive of Legal & General, said that over-regulation and misguided political interventions in the sector risked undermining the economy. Mr Bailey said the UK had become too focused on “low yielding assets”, such as bonds, and ignoring investments that could generate higher returns for savers.

He said: “We’ve got to think about what is the right structure and operating model for that world to get the right balance between saving, risk-taking and productive investment.

“We have probably got too many small pension funds.

“The problem with that is that there are not economies of scale in risk management.

“The smaller the fund, the more the pressure to have something that is simple to manage but doesn’t actually have sensible diversification.”

Julia Hoggett, head of the London Stock Exchange, said that much greater consolidation of pension schemes was needed to achieve the scale to invest more in growth sectors like tech and bioscience, adding: “We’re not proposing rocket science.”

Mr Bailey added that unlocking “productive finance” and investment will be key for boosting economic growth as the UK grapples with the long-term structural problems that come with an ageing population.

It came as the founder of Monzo quit London in favour of San Francisco, saying the US was “much more accepting” of tech companies than Britain.

Tom Blomfield, who co-founded the banking app in 2015 and left the company in 2021, said that Britain was “not always favourable to ambitious founders who want to try to do something unusual”.

Mr Blomfield said he would join Y Combinator, a start-up accelerator, as a partner.

He said the company has worked on projects ranging from “AI to space rockets to supersonic jets”.

He told Bloomberg: “That ambition and that sort of belief that you can achieve anything I think is very, very powerful and intoxicating, and doesn’t exist as much in London.”

Companies that have participated in Y Combinator’s programme include Airbnb, the online forum Reddit and the file-sharing website Dropbox.

Mr Blomfield used the programme to launch Monzo after he “struggled to raise money in London”.

The departure of Mr Blomfield will intensify concerns that London is an increasingly unattractive location for start-up founders seeking investment.

‘You have got to stimulate risk-taking and productive finance and regulate in a way that encourages that’