Bosses of financial services firms could see their pay linked to diversity targets under plans set out by the Bank of England and City regulators.
The Bank, Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) are looking at ways to use their powers to boost diversity and inclusion in financial services, including the use of targets, regular reporting and linking pay to progress.
Sam Woods, Bank of England deputy governor for prudential regulation and chief executive of the PRA, admitted “more needs to be done” to speed up progress on increasing diversity throughout the sector.
He said: “While some progress has been made to improve diversity and inclusion in parts of the financial services sector over the last decade, the discussion is still in its early stages and 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.
“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.”
In a discussion paper on increasing diversity, the regulators are proposing to make senior leaders directly accountable for diversity and inclusion in their firms, with a focus on data and disclosure to allow regulators to monitor progress.
It comes after recent data has suggested there is woeful representation of women and black, Asian and minority ethnic (BAME) groups in senior leadership roles across the sector.
The 2021 Women in Finance Charter Annual Review found under a third – 32% – of senior manager roles were held by women on average – edging up less than one percentage point year-on-year since 2017.
While gender balance progress has been made across the FTSE 100 thanks to the Hampton-Alexander Review, a recent report by Women on Boards UK found less than half of listed firms outside of the biggest 350 companies have met targets for women in the boardroom.
There are also worrying signs that the situation for ethnic minorities may be going into reverse, with this year’s Green Park Business Leaders Index showing a decline in the number of black leaders within FTSE 100 companies.
It revealed fewer than one in 10 financial services management roles are held by BAME people.
The City regulators said they believe it is vital to increase diversity to improve governance, decision-making and risk management within firms, as well as to promote a more innovative industry.
The FCA is already looking into how it can increase diversity within listed firms, with more details due over the coming months.
FCA boss Nikhil Rathi said: “We are concerned that lack of diversity and inclusion within firms can weaken the quality of decision-making.
“We look forward to an open discussion on how we should use our powers to further diversity and inclusion within financial services.”
A one-off pilot will be conducted later this year to gather data on diversity within workforces as the regulators look into the possibility of regular reporting from firms in future.
They are also seeking views on the discussion paper, which remains open until September 30, with a view to launching proposals under a joint consultation in the first quarter of 2022.