Is Diversity & Inclusion about to become a regulatory issue?

HM Treasury’s Women in Finance Charter, which PIMFA signed in 2017, reflects the government’s aspiration to see gender balance at all levels across financial services firms and, speaking at the recent launch of the latest review Nikhil Rathi, CEO at the FCA, reflected on how this may become a regulatory issue in the near future if more work is not undertaken to meet the Charter’s aims.

The review found that, despite the effects of the pandemic, the majority of signatory firms had met or were in the process of meeting their targets, but Rathi admitted that the FCA, themselves a signatory, fell short of their own 2020 target, saying “At the FCA, we set ambitious targets: women accounting for 45 per cent of our senior leadership team by 2020, and half by 2025. That we missed our 2020 target by 5 percentage points shows we too have work to do.”

However, they have since led by example in appointing four new women to their executive team, meaning that 10 of the 19 people on the FCA’s board are now women. But gender is not the only element to this issue.

Citing research by Randstad, fewer than 10% of management roles in financial services are held by black, Asian or minority ethnic people. Supporting this, the Parker Review reported that there were only 80 directors of colour in the FTSE 250, representing 5 per cent of the total. At the same time, black, Asian and minority ethnic adults are disproportionately represented among the growing number of vulnerable consumers. “This lack of diversity at the top raises questions about firms’ ability to understand the different communities they serve, and their different needs.”

He added: “In our recent guidance on vulnerability, we said that firms – all firms – needed to understand the needs of their customers and be able to respond to them through product design, flexible consumer service and communications. I would question if any firm can adequately respond to the needs of these consumers if they do not have the diversity of background and experience required to overcome biases and blind spots.”

This highlights the need for our industry to reach out and find a wider, more diverse recruitment base and the work we have done over this past year with The Brokerage shows that this approach can pay dividends. Our first Authentic Leadership sessions attracted over 100 female candidates between the ages of 16-25, 95% of whom were of non-white British backgrounds and the vast majority were from the sort of socio-economic background where access to professional occupations is harder to achieve.

These groups were mentored by a diverse, volunteer panel who shared their work/life experiences to show that women could enter the financial world irrespective of their choice of degree or background.

Regulatory intervention in this space may well come via the Senior Managers and Certification Regime (SM&CR), which has applied to all financial services companies – including financial advisers – since December 2019.

Under the regime, the most senior staff at firms are deemed “senior managers” and must be approved by the FCA before taking on their roles. They must also have a statement of responsibilities which sets out their responsibilities, which the regulator must also approve.

Rathi said: “As an employer, we are determined to improve our own diversity and to work on our culture to ensure it is inclusive. As a regulator, we want the same from the firms we oversee and in the markets we regulate. Not because it is a social good – although, frankly, that should be enough.

“We care because diversity reduces conduct risk and those firms that fail to reflect society run the risk of poorly serving diverse communities. And, at that point, diversity and inclusion become regulatory issues.”

PIMFA’s Authentic Leadership programme launched on February 9th and our new Diversity & Inclusion Awards 2021 launched on 20th May. More information on these and other PIMFA initiatives can be found here.