Diversity and inclusion in the financial sector - working together to drive change

This week, the FCA, PRA and Bank of England published a Discussion Paper setting out their plans to improve diversity and inclusion in regulated firms.  Views on the plans are sought from firms and a wide range of other stakeholders, with the regulators seeing the push to improve diversity and inclusion within the industry as a journey that regulators and regulated are on together.

The regulators believe that increased diversity and inclusion 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. 

While acknowledging that some progress has been made to improve diversity and inclusion in parts of the financial services sector over the last decade, the regulators consider that there is still a very long way to go, and that more needs to be done to speed up progress, giving some stark statistics: 

1. The 2021 Women in Finance Charter Annual Review reported that in 2020 there was, on average, 32% female representation in senior management amongst charter participants, showing an increase of less than one percentage point year on year from 2017.
2. Ethnic minorities continue to be under-represented in senior positions, with a 2018 Randstad report showing that fewer than one in ten management roles in financial services are held by black, Asian or other minority ethnic people.
3. There is also limited progress with social mobility. A deep dive study from the City of London Corporation/Bridge Group of eight financial firms (including regulators) found that 89% of senior roles are held by people from higher socio-economic backgrounds.

There is, however, clear momentum for change building in the UK and around the world. Social movements and increasing investor focus have led to global conversations, in particular about gender and race. These have engaged the attention of regulators globally and the UK regulators see the Discussion Paper as an important step towards making rapid and more substantive progress across the financial sector. 

The regulators want to engage financial firms and other stakeholders in a discussion on how to accelerate the pace of meaningful change, clarify expectations and set higher standards on diversity and inclusion, noting that change cannot be driven by regulatory requirements alone. It relies on the positive engagement of firms to achieve cultural change, driven by committed leadership across the sector. They want firms to think about how they can advance diversity and inclusion through improving their policies, governance arrangements, accountability, remuneration arrangements and disclosure. 

The Discussion Paper also focuses on the importance of data and disclosure in order to enable firms, regulators and other stakeholders to monitor progress, and the regulators are proposing to collect data from firms about their workforce in order to do so.  Prior to this there will be a one-off, pilot survey later this year to 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 Discussion Paper is open for responses until 30 September. The feedback and data received will be used to develop detailed proposals, with a joint consultation planned for Q1 2022 and a Policy Statement in Q3 2022.

The regulators' believe that by working together on these issues, we can drive real change.  Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of the PRA, sums up: "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." We hope that many in the sector will offer their contributions.

Authors: Lynn Dunne, Partner and Lindsey Davies, Senior Expertise Lawyer