Financial Conduct Authority Chief Executive Nikhil Rathi spoke at the “HM Treasury Women in Finance Charter Annual Review Launch 2021” that confirmed the regulator’s commitment to D&I.
In the speech, he said diversity and inclusion was “both a matter of fairness and a crucial way to strengthen consumer outcomes” in the financial services sector.
His address gives an insight into what financial services firms should do to make their workspaces more equitable, which goes beyond diverse gender representation.
Intersectional approaches and BAME representation
He highlighted how “broad” a spectrum diversity is, which encompasses “social background” as well as aspects such as gender, ethnicity, and disability.
“Today, while we focus on gender equality, I want also to consider how this intersects with other protected characteristics, primarily ethnicity, and why we care about these issues not just as an employer and an exemplar for industry, but as a regulator, too.”
He cited the absence of BAME people in management roles which are held by “fewer than 1 in 10” and referenced The Parker Review that found only 5% of FTSE 250 directors were people of colour where “few hold the positions of CEO or Chair.” He also said “the low number of women of colour in senior positions in financial services” was “a particular concern.”
Diverse staff to help diverse customers
He said that lack of diverse leadership could impact the ability of firms to help their customers: “Our Financial Lives research shows Black, Asian and minority ethnic adults are disproportionately represented among the growing number of vulnerable consumers, and so at greater risk of financial harm.”
He also said women were “less likely than men to have the savings needed to weather financial hardship.”
Citing research from women’s charity, The Fawcett Society, he said ethnic minority women “are more worried about debt and less likely than white men or women to make ends meet and are working more, both paid and unpaid.”
To help customers during COVID-19 and beyond, he said firms needed to diversify their teams to overcome “bias” and “blind spots” which would help them “understand the needs” of these customers better, and “be able to respond to them through product design, flexible consumer service, and communications.”
Women in financial services
He referenced ex-Virgin Money CEO, Jayne-Anne Gadhia‘s 2016 review on women in financial services, where her 2015 research found that women only represented 14% of executive committee members.
She also found that women either remained in the sector and lacked career progression or left altogether, Rathi summarised: ” they left, not just because of childcare, but because the culture wasn’t right.”
Rathi said that since the Charter was established, “62% of signatories have seen an improvement in female in senior management.” However he maintained that more needs to be done: “But, even among those signatories, women represent less than a third of senior management.”
He reiterated the importance of turning these numbers around as “greater gender diversity improves risk management culture and decreased the frequency of European banks’ misconduct fines.”
He outlined the business benefits of diversity, citing McKinsey research where “the most diverse companies are 35% more likely to outperform the least diverse.”
The FCA’s aims
Rathi was clear that regulators need to work as hard as firms to boost gender diversity in financial services:
“At the FCA, we set ambitious targets: women accounting for 45% of our senior leadership team by 2020, and half by 2025. That we missed our 2020 target by 5% shows we too have work to do.”
He said he wants to make financial services an inclusive culture too. Referencing the FCA’s “5 conduct questions” for senior managers, he said he wants a sixth point added: “Is your management team diverse enough to provide adequate challenge, and do you create the right environment in which people of all backgrounds can speak up?
Closing his speech, he warned firms that if things didn’t change, he would consider implementing more force and suggested that “diversity of management teams and the inclusivity of the management culture they create” might become a consideration of senior manager applications.
He also said the industry should “look hard at the way capital markets work”:
“In the US, we have seen the Nasdaq take the lead with its listing rules, which will require all companies listed on its US exchange to have, or explain why they do not have, at least two diverse directors. As part of our regulatory work on diversity and inclusion and the listings framework, we will be exploring whether we should make similar requirements part of our premium listing rules.
“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.”
Ross Maycock, Senior Vice President of People at omnichannel company, Teleperformance UK, comments on the FCA’s decision to make a stronger stand to combat lack of diversity in financial services:
“As an employer that has recently earned the “Great Place to Work” accreditation, we recognise that diversity is quite rightly becoming an increasingly more important issue across all levels of business. The proposed move from the FCA to take diversity into consideration when deciding whether to approve an application for a senior manager is a step in the right direction.
“However, more needs to be done. Many organisations still need a greater level of education on how diversity can benefit their business. Not only can it provide a greater pool of talent, with differing skill sets and experiences on offer than if there was no diversity. It’s also key for building trust and confidence within organisations, allowing individual characteristics to be heard.
“With coronavirus forcing us to streamline the way in which we work, surely now is also the time to address the inequality in boardrooms and senior management so that the next normal isn’t just hybrid working, it’s a more diverse and level playing field.”
The Women in Finance Charter is a Government-sponsored pledge for gender equity in financial services. Firms that sign up make a promise to support female representation. Click here to find out more.