How do you build innovation inside a firm designed to avoid risk?

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I spent 18 years at HSBC Alternative Investments, a global banking group with a low risk appetite, heavy regulatory oversight, and a compliance culture that extended into every operational decision. Innovation was not in the job description. But over that period my team and I built the infrastructure that grew a $200m hedge fund start-up into a $31.6bn global multi-asset manager. Regulated firms are designed to control outcomes. Innovation requires tolerating uncertainty. The question is what kind of leadership reconciles those two realities.

Innovation in a risk-averse organisation does not look like innovation in a start-up. There are no hackathons. What works is what Tom Kelley calls the learning persona: the conviction that no matter how successful a firm currently is, nobody can afford to be complacent. At HSBC, this meant constantly observing where processes were failing and where technology that had served us well was now holding us back. The insight came from watching the work, not from a strategy document.

Innovation does not require large budgets. Building an in-house reconciliation tool that eliminated dependency on a third-party system saved $350,000 over five years. Redesigning the data flow between our London office and State Street removed manual steps in place since the platform was built. Neither required board approval. They required someone paying attention and having the freedom to act.

That freedom is the hard part. In a regulated environment, the leadership challenge is creating space for controlled experimentation where team members can propose changes, test them, and learn from the results without failure being treated as a compliance event. The difference between a firm that innovates and one that stagnates is often whether the culture treats a failed experiment as a learning event or a disciplinary one.

Barclays attempted something interesting in 2013 with the Barclays Lens, a decision-making framework designed to help employees move beyond the minimum requirements of regulation and compliance toward broader consideration of societal and environmental impact. Whether or not it succeeded fully, the principle was right: give people a structured way to think beyond the immediate rules and they will find opportunities that pure compliance thinking misses.

Google's engineering culture operates from the premise that company culture and innovation cannot be separated. That is harder to implement in a bank than in a technology company, but the underlying insight holds. If the culture actively discourages experimentation, no amount of innovation budget will compensate. If it quietly permits experimentation within sensible boundaries, innovation happens without anyone needing to call it that.

The practical question for any leader in a regulated firm is where to start. The Cambridge Value Mapping Tool offers a useful frame: identify where value is currently being captured, where it is being missed, and where it is being destroyed. In my experience, the most productive innovations in financial services come not from building something new but from recognising where existing processes are destroying value through inefficiency, duplication, or unnecessary manual intervention, and then fixing them. That is not glamorous innovation. But it compounds over years, and it is the kind of change that survives a regulatory audit because it improves controls rather than weakening them.

The leaders who build innovation capability inside regulated firms are not the ones who fight the constraints. They are the ones who understand them well enough to find the space within them. That requires systems thinking, curiosity about how work actually gets done, and the willingness to let team members own the solution. Innovation in a bank happens over quarters and years, not sprints. The results compound quietly until the firm looks back and realises it has built something that did not exist a decade earlier.