The Financial Conduct Authority (FCA), Bank of England (BoE) and Prudential Regulation Authority (PRA) have teamed up to tackle a lack of diversity among regulated firms.

In a discussion paper, the regulators have proposed options such as the use of targets for representation and measures to make senior leaders directly accountable for diversity and inclusion in their firms.

The regulators have also set out policy options such as linking remuneration to diversity and inclusion metrics’ and have made suggestions around the regulators’ approach to considering D&I in a non-financial misconduct.

The discussion paper paper additionally focuses on the importance of data and disclosure in order to enable firms, regulators and other stakeholders to monitor progress.

All three regulators believe that increased diversity and inclusion will advance their statutory objectives by resulting in improved governance, decision-making and risk management within firms, a more innovative industry, and products and services better suited to the diverse needs of consumers.

PRA CEO, Sam Woods said the discussion is still in ‘its early stages’, but that “more needs to be done to speed up progress”.

“Regulators and industry need to work together to increase diversity at senior levels and ensure that the UK’s financial services firms are best equipped to serve the economy,” Woods said.

“A lack of diversity of thought can lead to a lack of challenge to accepted views and ways of working, which risks compromising firms’ safety and soundness.

“The paper we have published today is intended to start a new conversation with firms about how we can best move forward across the sector, while we also take steps to improve diversity and inclusion within our own organisations. I encourage firms and other interested stakeholders to give us their views on our proposals.”

BoE deputy governor for financial stability, Sir Jon Cunliffe added: “Diversity and inclusion is beneficial for financial stability. Groupthink and overconfidence are often at the root of financial crises.

“Enabling a diversity of thought and allowing for an array of perspectives to coexist supports a resilient, safe and effective financial system. The paper we have published invites a discussion on our thinking on how the industry, including Financial Market Infrastructure firms (FMIs), can develop its approach to diversity and inclusion, in line with our objective to ensure sound, robust financial markets.”

As part of its consultation process, the firms are collecting data from firms about their workforce, prior to which there will be a one-off survey to help develop the proposals set out in the discussion paper.

The regulators are also asking for views on how any changes could be tailored to specific categories of firms to ensure it is proportionate.
The discussion paper is open until 30 September 2021.

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