The Financial Conduct Authority (FCA), Bank of England and Prudential Regulation Authority (PRA) have announced plans to improve diversity and inclusion (D&I) in the financial services sector, by holding senior leaders accountable for speeding up D&I progress.
The UK’s finance regulators have set out policy options in a discussion paper today which include the use of targets for representation, measures to make senior leaders directly accountable for diversity and inclusion in their firms; linking remuneration to diversity and inclusion metrics and the regulators’ approach to considering diversity and inclusion in non-financial misconduct. The plans focus on the importance of data and disclosure in order to enable firms, regulators and other stakeholders to monitor progress.
The regulators believe that increased D&I will advance their statutory objectives by resulting in improved governance, decision-making and risk management within firms; a more innovative industry; and products and services better suited to the diverse needs of consumers.
SPEEDING UP D&I PROGRESS IN FINANCE
“While some progress has been made to improve diversity and inclusion in parts of the financial services sector over the last decade, the discussion is still in its early stages; and more needs to be done to speed up progress,” stated Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of the PRA. “Regulators and industry need to work together to increase diversity at senior levels; and ensure that the UK’s financial services firms are best equipped to serve the economy.”
A lack of diversity of thought “can lead to a lack of challenge to accepted views and ways of working; which risks compromising firms’ safety and soundness”, Woods added. “The paper we have published today is intended to start a new conversation with firms about how we can best move forward across the sector; while we also take steps to improve diversity and inclusion within our own organisations. I encourage firms and other interested stakeholders to give us their views on our proposals.”
TACKLING LACK OF DIVERSITY
D&I “is beneficial for financial stability”, highlighted Sir Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England. “Groupthink and overconfidence are often at the root of financial crises. Enabling a diversity of thought and allowing for an array of perspectives to coexist supports a resilient, safe and effective financial system. The paper we have published invites a discussion on our thinking on how the industry, including Financial Market Infrastructure firms (FMIs), can develop its approach to diversity and inclusion; in line with our objective to ensure sound, robust financial markets.”
Nikhil Rathi, Chief Executive of the FCA said he is “concerned that lack of diversity and inclusion within firms can weaken the quality of decision-making. We look forward to an open discussion on how we should use our powers to further diversity and inclusion within financial services, to the mutual benefit of firms and their customers”.
To assess progress the authorities are proposing collecting data from firms about their workforce. Prior to this there will be a one-off, pilot survey later this year. This will help to develop the proposals set out in the discussion paper; and test how firms can provide data with a view to considering regular reporting in the future. The regulators are also calling for views on how any changes could be tailored to specific categories of firms to ensure it is proportionate. The discussion paper is open until 30 September 2021. The feedback and data received will be used to develop detailed proposals; with a joint consultation planned for Q1 2022.
Earlier, this year the FCA said it was considering following in the footsteps of the US and making it a requirement for companies to meet diversity standards if they want to be listed. Click here to read more.
More recently in the US, Goldman Sachs Asset Management and the National Association of Investment Companies (NAIC), the trade association for diverse-owned alternative investment managers, have joined forces to improve diversity in the alternative investment industry. Click here to read more.
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