16th May 2019
City faces diversity wake up call
City must wake up to new FCA focus on diversity and inclusion
- Individuals, and firms, at risk of hefty penalties for misconduct
- Finance heads aware of new focus but lack the impetus to change
- Reputational risk for organisations on a par with #MeToo
A survey of City leaders reveals that despite being aware of the Financial Conduct Authority’s (FCA) sharpened focus on diversity and inclusion (D&I), many view it as ‘just another hoop to jump through.’ Yet the financial services sector ‘simply can’t afford to ignore’ the issue, states the survey report by BrightPool, as the potential for reputational risk is too high.
As the City deals with accusations that its boardrooms and offices are not sufficiently diverse or inclusive, the survey looks at a sector rocked by high-profile scandals such as The President’s Club revelations and the wider impact of the #MeToo movement. Among the survey’s findings is the fact that efforts to boost D&I risk being hampered by a lack of practical guidance and support – despite the sector’s best intentions.
In fact, two thirds (63%) of those surveyed believe that the FCA’s stance that ‘non-financial misconduct is misconduct’ is a step in the right direction for the financial services industry, and the same number believe this focus will be effective at creating more diverse workplaces in the financial sector.
The FCA has specifically highlighted that “diversity and inclusion issues may have an impact on the fitness and propriety of senior managers.” It is sending a message to the industry that non-financial-misconduct, including harassment and discrimination, will not be tolerated.
The regulatory body has also highlighted D&I as a key indicator to be assessed in its regular supervision meetings with firms. It is keen to see evidence that firms are promoting D&I and cultivating a more diverse working environment, which, the FCA outlines, results in an industry more attuned to its customer base, and therefore delivers a better customer experience.
Yet nearly 1 in 2 (48%) of leaders in financial services believe the new requirements are unnecessary and ‘just another hoop’ for their firm to jump through. And, only 25% of leaders believe their firm is fully prepared for the FCA’s increased focus on culture.
Jayne Cullen, MD at talent sourcing specialist, BrightPool, explains:
“Our survey and resulting report clearly shows a sector that wants to improve, but is lacking the know-how, impetus or guidance to get there
“The reality is that firms face a serious risk to their reputation and finances, not to mention the personal impact of fines on senior executives. This isn’t a forewarning to the sector – it’s happening right now, so it’s time for firms to act and fully embrace the wider benefits that a diverse and inclusive culture brings.”
Under the FCA’s Senior Manager & Certification Regime (SM&CR), financial services heads can lose their jobs over non-financial misconduct issues. They can even be fined if there has been proven harm to customers. They – not just the firm – would be personally, and significantly, out of pocket. In fact, 67% of those surveyed believe that the risk of penalties will ultimately be the main driver for action.
But while the survey shows that the diversity message is getting through, it’s not enough in itself. Many financial services heads are nervous about the greater focus on the cultural behaviour at their organisations in the face of imminent supervision by the FCA
And there are wider pressures at play – in 2017 the Parker Review set a four-year target for the UK’s largest companies to recruit one board member from an ethnic minority background. It recognised the significant lack of diversity in the FTSE 100 companies it reviewed – just 85 of the 1,050 senior executive positions were held by members of BAME groups.
Cullen commented: “We expect this new focus to provide the catalyst for greater progress in the diversity and inclusion arena as regulatory bodies increasingly focus on the ‘why’ behind the ‘what’ in matters of misconduct.