Financial services firms should be required to link pay to metrics on diversity and inclusion and make those at the top directly accountable for falling short, the UK’s financial regulators have proposed.
Proposals to combat the lack of change included the use of targets for the representation of under-served groups, and revising the regulators’ approach to tackling diversity and inclusion in areas of non-financial misconduct, such as workplace sexism, homophobia and sexual harassment.
In a sweeping set of policy recommendations, the Bank of England, the Financial Conduct Authority and the Prudential Regulation Authority said firms in the City have not done enough to increase diversity and narrow the gender pay gap within their ranks.
These plans could be tailored to specific categories of firms to ensure proportionate impact, they added.
The UK’s top three financial regulators said in a 7 July discussion paper that they had joined together to develop a more robust standard on equality as part of a bid to ensure widespread change across the industry.
Data included in the paper showed only 13 of the chief executives at the top of FTSE 350 companies were women last year, or 5%, while female representation at senior management reached 32% on average. While the statistics for women have been improving over the years, the regulators said “the situation for ethnic minorities shows signs of going into reverse”.
“We are concerned that lack of diversity and inclusion within firms can weaken the quality of decision-making,” said Nikhil Rathi, chief executive of the FCA, in a statement alongside the paper.
The authorities have proposed to collect data from City firms about the makeup of their workforce, issuing a survey to help develop the proposals and test how companies can provide data to support regular reporting on diversity and inclusion in future.
“Groupthink and overconfidence are often at the root of financial crises,” said Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England.
“Enabling a diversity of thought and allowing for an array of perspectives to coexist supports a resilient, safe and effective financial system.”
Industry initiatives to improve diversity such as the Women in Finance Charter and the Race at Work Charter have largely relied on “exerting peer pressure for change”, the two leaders said in a joint statement alongside PRA deputy governor Sam Woods.
More than half of the firms signed up to boost gender diversity as part of the Women in Finance Charter last year failed to do so, including companies such as BlackRock, Deloitte and PwC, and regulators themselves such as the Bank of England.
Rathi admitted last month that the FCA also has “more work to do” on achieving an inclusive environment inside the watchdog, falling behind its targets on female representation and ethnic minority action.
The FCA has a target for women to make up 50% of its senior leadership positions by 2025. The regulator’s top team was 40% female in September last year, with no change from a year earlier, while the percentage of those from minority ethnic backgrounds rose from 7% to 10%.
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