FCA: Diversity in financial services is improving but there is still more to do

The Financial Conduct Authority (FCA) has revealed that 62% of signatories to the Women in Finance Charter have seen an improvement with female representation in senior management.

This was revealed during a speech delivered by Nikhil Rathi (pictured), chief executive of the FCA, for the HM Treasury Women in Finance Charter Annual Review Launch 2021.

Rathi explained that diversity is a broad topic covering a range of characteristics including gender, ethnicity, sexuality, disability and, increasingly, the social background of the FCA’s colleagues.

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He said: “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.”

Despite signatories noting an improvement in equality, women still receive 28% less pay than men and account for only 17% of those approved by the FCA which tends to include the most senior people in financial services.

The FCA initially set the target for women to account for 45% of its senior leadership team by 2020, and half by 2025.

This 2020 target was missed by five percentage points, which Rathi said “shows we too have work to do.”

Rathi said: “As I have been building my new executive team, I have been focused on finding the very best candidates and that has meant ensuring diverse shortlists.

“Last month, after rigorous searches, we made four appointments to the FCA’s executive committee – all of whom happened to be women – all the best candidates tested in competitive processes.”

As a result of the appointments, 10 of the FCA’s 19 board or executive committee members are now women.

According to McKinsey & Company research, the most diverse companies are 35% more likely to outperform the least diverse.

However, fewer than one in 10 management roles in financial services are held by black, Asian or minority ethnic people.

The Parker Review reported that there were only 80 directors from ethnic minorities in the FTSE250, equating to 5% of the total.

Within the speech, Rathi said: “Where there are directors of colour they tend to be concentrated in a small number of firms and few hold the positions of chief executive or chair.

“The number of women of colour in senior positions in financial services is a particular concern.

“This lack of diversity at the top raises questions about firms’ ability to understand the different communities they serve, and their different needs.”

During the pandemic, an ONS study revealed that women have reported that they are doing 64% more housework than men and that their childcare responsibilities have doubled.

According to The Fawcett Society, the impact of the pandemic is particularly acute for ethnic minority women.

The society noted that ethnic minority women are more worried about debt and less likely than white men or women to be able to support themselves financially.

Rathi explained that ethnic minority women are working more – both paid and unpaid – and are more anxious about work.

He added: “Perhaps unsurprising when you consider that black African and black Caribbean people are overrepresented in front-line health and social care roles.”

Within recent FCA guidance on vulnerability, it noted that all firms must understand the needs of their customers and be able to respond to them through product design, flexible consumer service and communications.

Rathi said: “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.

“Ultimately, improving diversity and inclusion is both a matter of fairness and a crucial way to strengthen consumer outcomes.”

Rathi also went on to say that the FCA is working with the Prudential Regulation Authority (PRA) to formalise its regulatory approach to diversity and inclusion under that duty and its objectives.

Looking to holding firms accountable, Rathi outlined that the FCA has introduced five conduct questions to help focus minds of senior managers on conduct risk.

He said: “I would like to see this expanded – and a sixth added – for all firms: ‘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?’”

Looking ahead, Rathi believes that if improvement within diversity at senior level is not seen, the FCA will look to “how best to use our powers”.

He added that this is something the FCA will consider over the next year, in work led by Georgina Philippou, until recently the chief operating officer of the FCA.

Rathi said: “I would encourage all capital markets participants to consider the reasons why there are so few female chief executives and chief financial officers or chief executives and chief financial officers of colour presenting during IPOs or when capital is being raised.

“Are there challenges in the culture of private equity, underwriting, equity syndication?

“What more can we do to sponsor and celebrate female business leaders and entrepreneurs?”

In conclusion, Rathi outlined that the FCA as an employer, is determined to improve its own diversity and to work on its culture to ensure it is inclusive.

As a regulator, the FCA want the same from the firms it oversees and in the markets it regulates.

Rathi said: “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.”