On 17 March 2021, the FCA published a speech by Nikhi Rathi (CEO, FCA) entitled Why diversity and inclusion are regulatory issues.
Key points in the speech include:
- Research has suggested that greater gender diversity improves risk management culture and decreased the frequency of European banks’ misconduct fines.
- Evidence suggests that there is a strong business case for diversity. According to research, the most diverse companies, for example, are 35% more likely to outperform the least diverse.
- Fewer than 1 in 10 management roles in financial services are held by black, Asian or minority ethnic people. The number of women of colour in senior positions in financial services is a particular concern. This lack of diversity at the top raises questions about firms’ ability to understand the different communities they serve, and their different needs.
- In recent FCA guidance on vulnerability, the regulator said that firms – all firms – needed to understand the needs of their customers and be able to respond to them through product design, flexible consumer service and communications. There is a question whether a firm can adequately respond to the needs of these consumers if they do not have the diversity of background and experience required to overcome biases and blind spots.
- As part of its work on wholesale banking culture, the FCA introduced 5 conduct questions to help focus minds of senior managers on conduct risk. Mr Rathi would like to see this expanded – and a sixth added – for all firms: is your management team diverse enough to provide adequate challenge and do you create the right environment in which people of all backgrounds can speak up? This is much broader than representation. It is about a firm’s culture. Not just in relation to diversity, but inclusion, too. Do people feel comfortable in the work environment such that they can demonstrate, share and bring to bear their diversity of experience and background?
- In the US, the Nasdaq has taken the lead with its listing rules, which will require all companies listed on its US exchange to have, or explain why they do not have, at least two diverse directors. As part of the FCA’s regulatory work on diversity and inclusion and the listings framework, it will be exploring whether it should make similar requirements part of the premium listing rules.