Today’s launch of a discussion paper by City of London financial regulators hoping to increase the pace of change when it comes to diversity and inclusion is a signal that some of the UK’s most powerful financial institutions are ready for significant change.
It shows that they are convinced that better decisions, governance and services stem from a far better representation at senior levels of women, people from ethnic minorities and those from less economically secure backgrounds.
Those who have been found to exhibit poor conduct relating to diversity and inclusion would be more systematically ruled out of promotion to senior and more influential roles within financial services” – Catriona Watt, Fox & Partners
Certain proposals made by the Financial Conduct Authority, Prudential Regulation Authority (PRA) and the Bank of England have attracted more attention than others.
One idea that the watchdogs will note has attracted a lot of comment is that for senior leaders to be made directly accountable for diversity and inclusion in their firms, which would mean linking progress to their pay.
Another that caught the idea of employment lawyers was the proposal to make adverse conduct by an individual in relation to diversity and inclusion part of an individual’s ‘fit and proper’ assessment in relation to carrying out their role in financial services.
Catriona Watt, partner at employment law firm Fox & Partners, said: “There have been instances in the past where the FCA has found an individual not to be fit and proper on the basis of ‘non-financial misconduct’ and the new proposals may develop further guidance for firms on this.
“This could mean that those who have been found to exhibit poor conduct relating to diversity and inclusion would be more systematically ruled out of promotion to senior and more influential roles within financial services and find it more difficult to secure new employment.
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Watt said: “Further guidance on this will help firms to be clear on types of financial and non-financial related behaviour that may have a regulatory impact. However, if real change in terms of diversity in financial services is going to take place, at the pace that society expects, then this must be embedded in the culture of a firm and the right tone set from the top of an organisation. Clear guidance on the impact of diversity and inclusion on fitness and propriety is likely to help that.
“Overall, I suspect that there will be scepticism on the impact of the proposals to driving real change until the consultation paper with plans for implementation is released.”
Watt pointed to research from Fox that showed women still only made up 15% of senior management positions at financial services firms, with just 7,552 of a total 50,639 senior management jobs held by women.
Fox’s analysis found that gender diversity was lowest at the CEO level of financial services businesses, of which women take just 7.8% of CEO positions (449 of a total of 5,742).
Just 8.3% of chair roles were held by women (174 out of 2,090).
The research also found that the average pay for female directors at FTSE-350 financial services firms stood at £247,100 compared with £722,300 for their male counterparts. “That means the pay gap between male and female directors at FTSE-350 financial services firms currently stands at 66%,” said Watt.
One of the big problems for businesses will be in the collection of this information” – Natasha Adom, GQ|Littler
Natasha Adom, senior lawyer at employment law firm GQ|Littler said that todays’ proposals could prove ground-breaking.
She was, like Watt, drawn by the proposal on fit and proper individuals. She welcomed the robustness of the approach but questioned how such a rule could be applied. Adom said: “Failing a fit and proper test can exclude them from a position of responsibility within financial services. If that sanction were used it would make individuals sit up and notice, but as the FCA has acknowledged, employers would need clear guidance on how that would work.”
She added: “The challenge for regulators is to deliver a diversity and inclusion policy that has teeth. Many of the policies they’ve laid out are very progressive as the feeling is that while there has been progress in certain areas, that rate of progress is not fast enough.”
Adom added that additional public reporting on the ethnic and social background of staff could help drive real change but it was not straightforward for employers and there were lots of complexities.
“One of the big problems for businesses will be in the collection of this information,” she said. “The FCA acknowledges that, even aside from data protection issues, this will be challenging and will take time along with new systems and processes. Individuals can (naturally) be reticent about providing personal information and this reticence increases the more information that is requested. Thankfully, there will be a pilot project to gather data on diversity within workforces and further consultation before any mandatory changes are made.”
She said there was likely to be a lot of debate over the size of business that would have to report and whether smaller but still influential businesses, should be excluded from the reporting burden.
Claire Tunley, chief executive of independent, industry-led Financial Services Skills Commission (FSSC), welcomed the ambition of the regulators’ discussion paper. She said the FSSC had developed an industry-wide inclusion measurement guide launching next week.
The guide closely aligned with the FCA, PRA and BoE regulatory roadmap, she said, and would help firms to better identify and build on existing inclusion data, measurement and analysis as well as consider non-visible diversity characteristics including socio-economic background and disability.
Tunley said: “This will direct firms towards a more inclusive, diverse working culture helping to attract and retain talent. We look forward to engaging with the FCA on this important plan in the coming months.”
The discussion paper is open until 30 September 2021 – with comments emailed to [email protected]. Opinion from a variety of sources is being sought, including from City firms, industry groups and trade bodies, consumer groups and individual consumers, policy makers, academics, think-tanks, industry experts and commentators.
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