Senior managers at financial services firms could have their renumeration based on their company’s diversity and inclusion performance under new rules announced today.
The Financial Conduct Authority, Prudential Regulation Authority and the Bank of England are seeking feedback on proposals put forward to improve diversity and inclusion in financial services.
“Linking progress on diversity and inclusion to remuneration could be a key tool for driving accountability in firms and incentivise progress” the paper said.
“We want to explore a future environment where all Senior Managers who have responsibility for managing employees… should expect their performance against these objectives to be reflected in their variable remuneration.”
Firms would also have to improve their data gathering processes to ensure disclosures on diversity and inclusion are accurate, allowing stakeholders and regulators to measure progress effectively.
The suggestions are set out in a discussion paper published today. The group is seeking responses from regulated firms, industry groups and trade bodies, among others on the costs and benefits of the suggestions.
Feedback will be open from 30 September, with a joint consultation expected to launch early next year.
Regulatory burden on senior managers could intensify
The group of regulators are intending to push further responsibility on to senior managers at financial services firms, making them directly accountable for diversity and inclusion at their company.
“We think that making senior leaders directly accountable for diversity and inclusion in
their firms would be a way to drive strategic thinking” the discussion paper said.
Oversight of delivering on additional metrics will addd to the burden of regulatory compliance senior managers already have to carry after the roll out of the Senior Managers and Certification Regime.
Nikhil Rathi, chief executive of the FCA, says: “We are concerned that lack of diversity and inclusion within firms can weaken the quality of decision-making.”
Sam Woods, deputy governor for prudential regulation and chief executive officer of the PRA, says: “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.”
Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England, says: ‘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 group also noted that they intend to consider the role of diversity and inclusion in instances of non-financial misconduct.
Firms to face diversity reporting requirements
The proposals suggest mandating regulated firms to publish data breaking down the diversity of their senior management cohort and entire workforce.
“We could consult on requirements for firms to publicly disclose a selection of aggregated diversity data on the firm’s senior management population and the employee population as a whole, as well as their diversity and inclusion policies, so that other firms and stakeholders can benchmark progress” the paper said.
The measures are intended to act as an incentive for firms that rank poorly on diversity measures to act.
Claire Tunley, chief executive of the Financial Services Skills Commission, says: “The diversity and inclusion plan announced today sets out a number of ambitious proposals for firms to consider and although progress has been made, further action needs to be taken to mobilise the breadth of change required.”