Thursday 8 July 2021 6:00 am

Bank of England and FCA: Financial services' bottom lines will be hit if they ignore diversity and inclusion

Sam Woods is the Deputy Governor of Prudential Regulation at the Bank of England, Jon Cunliffe is the Deputy Governor of Financial Stability,and Nikhil Rathi is the CEO of the Financial Conduct Authority.

The financial services industry, like many other areas in our society, has made slow progress in becoming more diverse and inclusive. In recent years, social movements in the U.K. and around the world, have put an acute focus on these issues.

Where these wider social issues impact the statutory objectives the UK’s financial regulatory authorities have been given by parliament, we need to take an active role in tackling these. We have a responsibility to address the negative and far-reaching impacts of these within financial services. There is a strong argument to be made that the lack of diversity contributed to the group-think which played a central part in the financial crisis of 2008. Research shows again and again that more diverse and inclusive environments can lead to better outcomes. 

Ensuring financial firms are more diverse and inclusive is of course the right thing to do to advance our statutory objectives – but it is also good for business. More inclusive work cultures encourage better judgement through a greater debate of ideas, it can help cultivate more effective decision-making. This is essential for a safe and sound financial system, and helps ensure that banks and other financial firms are better equipped to provide products and services that are fit for purpose for all of their customer base

That is why the Prudential Regulation Authority (PRA), the Bank of England and the Financial Conduct Authority (FCA) are starting a conversation on how we can use the tools at our disposal to support change.  

We are encouraging people from across the country to give their views on policies for the recruitment of diverse board members, the potential role of targets for representation, and measures to make senior leaders directly accountable for diversity and inclusion in their firms in order to drive change from the top. We want to consider a range of options, including regulatory codes that link remuneration to diversity and inclusion metrics as part of performance assessments. Having better data and greater disclosure is critical for enabling firms and stakeholders to monitor progress. 

We recognise and applaud the many initiatives underway across the industry and the leadership shown by many executives and the focus which investors are not increasingly bringing to these issues. However, the rate of change as a whole has been too slow, particularly on race where fewer than 1 in 10 management roles in financial services are held by black, Asian or other minority ethnic people. 

That is why we need to be ambitious.  

We know that we are proposing changes for firms when we also have much to do to make our own organisations more diverse and inclusive. The Bank, PRA and FCA are already working to promote diversity and inclusion internally, through recruitment initiatives, action plans, data and targets, and we are focused on making further improvements. 

We are fully committed to the ambitions of the Women in Finance Charter.

This is part of an important conversation – on the role of regulators in delivering a more diverse, more inclusive industry. We look forward to hearing your feedback.  

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.