SOAS University of London

SOAS Professor co-leads report on diversity decline in finance sector

9 January 2015

Professor Christine Oughton, Head of the Department of Financial and Management Studies, SOAS University of London, has co-led the research for a report revealing a decline in diversity in the UK finance sector.

The report, published by the Building Societies Association, demonstrates that despite a commitment by Government to improve diversity in financial services, the decline in the diversity of UK financial services noted in earlier research is continuing.

Prior to Professor Jonathan Michie at University of Oxford and Professor Oughton’s 2013 research there was no measure or index of diversity in financial services by which to assess the government’s progress in achieving its objective of promoting diversity in the finance sector.  Diversity important as it can enhance consumer choice, competition and financial stability.  

The initial 2013 research paper provided a robust index – the D-Index - based on 4 dimensions: (i) corporate diversity – the mix of plc banks, mutuals and public sector financial institutions; (ii) competition; (iii) financial resilience and funding models; and (iv) geographic diversity. The D-Index showed that between 2000-2011 there was a significant decline in diversity driven by a shift towards a concentration of larger, shareholder-owned, wholesale-funded, London-centred banks.

This latest report updates the D-Index to 2013 and shows that diversity in the savings market is at its lowest level since measurement began in 2000. A similar trend can also be seen in the mortgage market, with diversity around 20% below its peak in 2004.

The updated analysis of the D-Index provides useful empirical evidence to inform policy following the launch of the Manifesto for financial mutuals, which sets out a series of policy proposals to help a new government to deliver real competition, greater diversity in financial services and a better deal for consumers.

Professor Oughton said: “The Diversity Index (D-Index) for financial services shows that the decline in diversity observed since 2004 continued in 2013 – the latest year for which figures are available.  Given the importance of diversity for competition and the stability of the financial services sector, government and regulatory bodies should explore ways to foster diversity as a matter of some urgency.”

The research is on going as part of a wider project on financial resilience conducted jointly by SOAS, the University of Oxford’s Centre for Mutual and Employee-owned Business and the New Economics Foundation, and funded by Friends Provident.