Diversity matters. Improving it is not just a matter of fairness, but a crucial way for firms to gain access to the widest pool of talented individuals and their different experiences so they can better understand and meet the needs of the diverse communities they serve.
Why diversity matters
As an employer, we know that more diverse teams bring a wider range of experiences which will help us to be more effective. In 2016 we set targets that, by 2025, our Senior Leader Team (SLT) would have gender parity (50%) and that at least 13% of the SLT would identify as being from a minority ethnic background. We have since increased our ambition, expanding the scope of these targets beyond our SLT, increasing our SLT ethnicity target to at least 20% and introducing a minimum 25% target for minority ethnic representation at all grades. Where our data reveals remaining hold-ups, for example in slower career progression for black colleagues at the FCA, we act. We are now targeting that at least 4% of our SLT is black by 2025.
We will track our progress on a wide range of diversity characteristics, including sex and gender identity, and publish this in our Annual Diversity report. This allows us to be held to account for our progress.
Improving transparency
As a regulator, we are promoting greater diversity and inclusion both through the rules we set for listed companies and in our regulation of financial services.
We recently finalised rules requiring listed companies to report information and disclose against targets on the representation of women and minority ethnic groups on their boards and executive management, making it easier for investors to see the diversity of their senior leadership teams. The targets, against which firms must disclose on a comply or explain basis, are that at least 40% of the board should be women, with at least one of the senior board positions held by a woman, and at least one member of the board should be from a minority ethnic background. We have also changed our disclosure and transparency rules, requiring numerical disclosure on the gender and ethnic diversity of the executive management team as well as the board and keyboard positions.
We have introduced a minimum 25% target for minority ethnic representation at all grades
These new rules will apply for financial years starting on or after 1 April 2022. Firms who are listed in the UK will be in scope of these requirements.
We see these changes as very much a starting point. While our targets focus on the representation of women and minority ethnic backgrounds on boards of listed companies at this stage, we hope this serves to catalyse engagement between companies and investors with the aim of helping to hold companies to account and to drive further progress.
Increasing the pace of change
We have also been considering how to improve diversity through our regulation of financial services.
We published a discussion paper called Diversity and inclusion in the financial sector (our joint paper with the Prudential Regulatory Authority and the Bank of England) in July 2021. Through this we have used our unique position as regulators to start an open discussion with the sector on how to make the UK’s financial services more diverse and inclusive, including potential policy interventions we could make.
Diversity has many benefits. It supports healthy cultures within firms and in turn delivers high standards of conduct, reduces groupthink and supports effective decision-making. People with different life experiences bring new thinking to an organisation and their experiences can inspire new approaches to problem solving and decision-making.
This is why we want to encourage firms to promote diverse and inclusive cultures, which we believe will in turn help them look more closely at the needs of diverse customer bases and innovate to deliver the products and services they need.
Next steps
The deadline for contributions to our discussion paper was September 2021 and we are now considering the responses alongside responses to our recent diversity and inclusion pilot data survey and cost benefit analysis survey. We expect to publish a consultation paper proposing further actions in this area later in 2022.
These proposals are expected to apply broadly across the financial sector so are relevant for financial services firms authorised by the FCA which are also listed. This work, together with our final rules on diversity and inclusion on company boards and executive management, reflects our focus on speeding up the pace of change around diversity and inclusion in financial services.
Sarah Pritchard
Executive Director of Markets
Financial Conduct Authority
This column will appear in the special 30th anniversary edition of The Review, coming in July
All CISI members, excluding student members, are eligible to receive a hard copy of the quarterly print edition of the magazine. Members can opt in to receive the print edition by logging in to MyCISI, clicking on My account, then clicking the Communications tab and selecting ‘Yes’.
Once you have read the print edition, keep coming back to the digital edition of The Review, which is updated regularly with news, features and comment about the Institute and the financial services sector.