Driving Change: FCA Proposals to Support Diversity and Inclusion Across the Financial Services Sector

Concerns that financial services organisations are paying lip service to DEI has prompted proposals that strengthen the regulator’s expectations around non-financial misconduct.

At a time when the value of diversity and inclusion is recognised as fundamental to business success, the Financial Conduct Authority (FCA) is taking proactive steps to ensure that UK financial services organisations of all sizes foster inclusive and equitable work environments.

Together with the Prudential Regulation Authority (PRA), the FCA has published proposals to support progress on improving diversity in the wider financial services sector. Specifically, the regulator is clarifying and strengthening its expectations around non-financial misconduct, which will apply to firms large and small across the financial services sector.

The need for FCA intervention is clear; just 19% of C-suite positions in banking, capital markets and payments are held by women, according to analysis in Deloitte’s “Advancing more women leaders in financial services: A global report”. Meanwhile, over 100 companies in the FTSE 250 either have no ethnic minority representation on their boards or did not provide data, according to the 2023 Parker Review, while Green Park’s 2024 Business Leaders Index finds that there is limited ethnic minority representation in key roles such as the Chair (4%), CEO (8%), and COO (6%) across the FTSE 350. These statistics suggest that many financial services organisation are failing to turn the DEI rhetoric into reality.

Priscilla Akutu-Carter, a Principal Consultant in Green Park’s Diversity, Inclusion, Culture & Ethics (DICE) Practice, says: “Financial services is accessed by almost everybody indiscriminately, but the people who service the industry are not necessarily reflective of that, and you don't have the lived experience feeding into how those products are created.”

A central element of the proposals is the requirement for larger businesses to implement comprehensive diversity and inclusion strategies including objectives and goals, a thorough plan for achieving them, and a system for measuring progress. It should also outline the arrangements for identifying and managing any obstacles that may hinder the attainment of these objectives and goals.

The FCA also proposes that the largest financial firms - already required to publish their gender pay gaps - expand their DEI reporting to include representation on certain characteristics, including disability status and ethnicity. The threshold for larger businesses has been set at those with over 250 employees.

Firms will be required to collect and report annually across a range of DEI relevant data. These metrics would include mandatory demographic characteristics such as age, ethnicity, religion, disability or long-term health condition(s), and sexual orientation.

Additionally, firms will be required to report either on sex or gender, with the option to report on both voluntarily. Other voluntary metrics cover parental responsibilities, gender identity, and carer responsibilities, along with socio-economic background.

The FCA is not at present looking to mandate which demographic characteristics the targets must cover. Instead, businesses are encouraged to determine their own targets, considering their existing diversity profile, diversity and inclusion strategy, and operational context.

While this provides businesses with the opportunity to create tailored strategies that reflect their commitment to diversity and inclusion, it does increase the risk of businesses simply paying lip service to the proposals.

The consultation sends out a firm message that diversity and inclusion is no longer simply an issue of business success, it is also of regulatory concerns. At the same time, the proposed rules are needed because progress is glacial despite advice and signposting towards good practice.

Akutu-Carter says: “The aim is to be able to raise the minimum standard across the industry. And this calls those firms who aren’t doing anything or are just window dressing to account, but only to a degree.”

Green Park supports the consultation but is concerned that too many organisations will see it as a tick box exercise. Meanwhile, increasing diversity without a focus on inclusion is a flawed strategy, Green Park Chief Executive Officer, Raj Tulsiani, warns.

 “Without increasing inclusion, money that organisations are spending to increase diversity is unlikely to be a good investment, because people will just move. There's also good evidence that the things that retain diverse candidates are important for retaining everybody else. So, inclusion isn't just a diversity issue, it's also a business culture issue.”

Claire Tunley is Chief Executive of the Financial Services Skills Commission. “The diversity and inclusion angle is hugely important to make sure that the sector is recruiting from talent pools that are available, and understanding where that may be a bit off,” she says.

Tunley believes that the direction of travel on the FCA’s consultation is sensible, and sees that “we've made great progress on women in finance at senior levels.” This is evidenced by Green Park’s 2024 Business Leaders Index, which finds that the number of females in senior roles across the FTSE 100 has increased substantially over the last decade: from 24% to 30% for Top 3 roles, from 20% to 38% for Top 20 roles, and from 4% to 17% for Pipeline roles.

But the report also finds that more work needs to be done as women remain significantly underrepresented in many roles and are often on the B road to get to the very top. Tunley has seen this in financial services: “Over the last 20 years, 100,000 women have left the sector. You can’t chase the senior level if the pipeline of people coming through doesn't match. There has to be a long-term plan to make that lasting change.”

Tunley is concerned that organisations continue to see DEI as a standalone agenda. “There's a lot of evidence about diverse workforces leading to better business outcomes. But it's just as much about talent and skills and getting the people we want.”

According to the FCA’s proposals, collecting data on social mobility remains voluntary. But Akutu-Carter says there are strong reasons for firms to bring it into scope. “It has a compounding effect on all of the other protected characteristics,” she says.

Sophie Hulm is CEO of Progress Together, a not-for-profit membership body for UK financial services firms focused on socio economic diversity, particularly at senior levels. Data released by the Bridge Group and the City of London found that individuals from working class backgrounds progressed 25% slower than their peers, with no link to job performance. But this isn’t just about righting that wrong, it’s about innovation, global competitiveness and productivity, she argues.

“If we want to be globally competitive, we need 100% of the financial services sector to be looking at socio economic diversity and making sure that there are transparent processes so that people can get ahead regardless of their starting point in life. We know that people face barriers such as opaque processes around work allocation or access to senior sponsors and promotion. So yes, we do need the regulator to step in and apply a little bit of stick.”

To make change happen faster, we need data, Hulm says. “If you don't know what your workforce looks like and where you want to get to, you're going to be walking around in the dark. It's not about making individual promotion decisions. It's about spotting patterns of bias and developing a culture where people can progress regardless of who they know or their accent.”

However, Hulm also agrees that this has to go beyond the numbers to factor in a genuine understanding of lived experiences. “This can’t be just a tick box and be about wanting to look good.”

Tunley agrees that data is a great starting point but firms need to go further. “If people feel there's a fair and transparent process, people genuinely were okay [sharing information]. Having some of this data and understanding has equipped firms with a good sense of what they can do. Some of our members that have picked up that the lack of women in tech roles is creating distinct pathways to promote opportunities and handhold women into certain roles.”

At a time when there's a backlash on diversity, the need to help organisations unpick this lock in a way that drives real benefit for their organisation has never been greater, Tulsiani says. “It also means they will be more likely to do something that isn't tokenistic,” he adds.