Discussion paper issued on diversity and inclusion in the financial sector

The FCA has issued a joint discussion paper with the PRA and the Bank of England on actions to accelerate the pace of meaningful change on diversity and inclusion in the financial sector

On 7 July 2021, the FCA issued a joint discussion paper [DP21/2] with the Prudential Regulation Authority (PRA) and the Bank of England on actions to accelerate the pace of meaningful change on diversity and inclusion in the financial sector, and the roles the regulators can most usefully play to effect change. They are asking for all types of firms and other stakeholders in the sector to join in on the discussion as to how they can jointly speed up the pace of change, provide meaningful support to the sector, and develop robust future policy.

Setting out a package of reforms in a discussion paper, the regulators said they were considering mandatory rules to make senior leaders directly accountable for diversity and inclusion in their firms, as well as linking progress to their pay. Despite progress in recent years, the Bank and the FCA said the pace of reform was still too slow and that it believed a more diverse financial sector could improve the decision-making of companies, help spur innovation and make products and services better suited to customers’ needs.

The pace of improvement in diversity and inclusion in the sector to date is discouraging:

  • The rate of representation for ethnic minorities in senior management is declining, with fewer than 1 in 10 senior roles being held by members of this group.
  • The rate of female representation in senior management amongst participants to the Women in Finance Charter has increased by less than 1% each year since the charter was launched by the UK government in March 2016.
  • Social mobility shows weak progress with very few roles being filled by people from lower socio-economic backgrounds.

The regulators said they wanted to improve diversity of thought in top finance companies, including through gender, ethnicity, disability, sexual orientation and education.

Sam Woods, chief executive of the Bank’s Prudential Regulation Authority, which is responsible for supervising the UK’s biggest lenders, said: “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. 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.”

Nikhil Rathi, chief executive of the FCA, said: “We are 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.”

Assessing progress against objectives will be key for the regulator, with a proposal to collect specific data from firms regularly, along with a one-off pilot study later in 2021 to help develop the data collection process.

The discussion paper is open until 30 September 2021. The feedback and data received will be used by the regulators to develop their detailed proposals, and a joint consultation is planned for early 2022.

The discussion document can be found here.

Published 15 July, 2021

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