Opinion: UK regulators call crunch time on D&I
Last week, UK regulators called for views on their plans to improve diversity and inclusion in financial services, in a fresh demonstration that the matter is now firmly in the watchdogs’ eyes.
In a discussion paper the FCA and PRA have demanded better data collection on the diversity of regulated firms, and have made clear they want to improve transparency on some or all of the nine protected characteristics defined in the Equality Act 2010 – as well as socio-economic background.
Social mobility is in fact specifically highlighted as an area where financial services is deemed lacking – with the paper stating that a deep dive of eight financial service firms found that 89% of senior roles are held by people from higher socio‑economic backgrounds.
However, the proposals will go further. Also in scope for the consultation are concepts such as whether D&I targets should be mandated, what data should be collected, and possibly most significantly – bringing the D&I agenda into scope for senior managers and board-level roles.
The financial services industry has in recent years seen multiple pledges and campaigns to improve D&I, but it is clear now that accountability and demonstrable progress will be expected from the UK watchdogs.
“It is not enough to make a commitment to diversity and inclusion; it has to be purposeful and authentic,” the FCA said in its discussion paper.
Observers and consultants have already come out and stated the discussion paper’s significance.
Sajedah Karim, financial services partner at EY said the paper was “arguably more wide ranging and ambitious than many might have anticipated”.
She continued: “Overall, the regulators are sending an unequivocal message to the market that this is a priority topic and that change must come.
“This is a positive and ambitious message, but there is significant input needed from across all firms ahead of the September deadline for response, before further consultation in Q1 2022.”
Financial services as an industry has never been at the leading edge of D&I efforts and insurance even less so.
The launch of the Dive In Festival, the annual Lloyd’s culture survey and various corporate promises and pitches have all served to raise awareness of the importance of D&I, but to date the urgency on driving tangible progress has been somewhat lacking – despite strong warnings from the likes of Lloyd’s on meeting targets on female leadership representation and soon ethnic diversity.
And now, it seems that the UK insurance market has a mammoth task on its hands. Culture and D&I has not necessarily been a priority to date – Lloyd's 2020 culture dashboard revealed that only 38% of firms had culture as an agenda item on their board.
An initial call round of London market sources suggest a sense of nervousness around the regulators’ proposals.
The collection of data will be in itself a challenge – the FCA and PRA suggest that companies ask employees to self-identify in staff surveys, which will require a corporate culture which promotes a safe environment for individuals to do so.
The process of designing and delivering the strategy will also be under scrutiny. The FCA said the credibility of a firm’s diversity and inclusion strategy could be called into question if it is overseen by “a homogenous group without diverse experience and thought” – which arguably sits at odds with a market which is overwhelmingly white and, certainly at leadership level, male.
Sources pointed to additional concerns around what will be deemed a measure of success by the regulators, and how internally companies can satisfy themselves that they are implementing the kind of changes regulators are looking for.
At the same time, few will also want to put their head above the parapet and challenge the regulators on their approach on a topic as sensitive and important as D&I.
It is early days in the regulators’ D&I drive but what is overwhelmingly clear is that individuals will be held accountable for progress in a way which has not been demanded before.
“We envisage that it would be the responsibility of the senior managers to deliver results, being transparent about success and failure, and drilling down on the barriers hindering diversity and inclusion progress,” the paper states.
And for us, here lies the crucial point of these proposals.
In the wake of multiple pledges on D&I from the insurance industry, this publication has previously questioned where accountability should lie to ensure that companies are pushing past the performative on D&I.
Until now, there has been no clear answer – but the FCA and PRA has now made explicit that they believe the responsibility on driving change lies with senior managers and the board.
And the regulators will be the ones with their feet on the back of their necks.