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| 1 minute read

Why diversity and inclusion are regulatory issues

Earlier this week, at the launch of the HM Treasury Women In Finance Charter Annual Review, the FCA’s CEO Nikhil Rathi set out why, as a regulator, the FCA cares about diversity.

It is “[n]ot because it is a social good – although frankly, that should be enough. We care because diversity reduces conduct risk and those firms that fail to reflect society run the risk of poorly serving diverse communities. And, at that point, diversity and inclusion become regulatory issues.

In the wake of celebrations for International Women’s Day, Mr Rathi was clear that firms still have a long way to go to ensuring better representation for women, as well as black, Asian and minority ethnic adults in management roles in financial services.

To improve accountability he proposed the addition of a further conduct risk metric 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?

I wrote about this last month. Most organisations are on a journey with respect to diversity and inclusion, and senior management do not yet match the diversity of their workforce. Thus, a disproportionate burden then falls on often younger, more junior voices in a business to speak up and challenge the status quo.

It’s a fine line, and many people weigh up the pros and cons of speaking up daily. We speak up to make our organisations a better place and we hope that senior management are able to receive our feedback positively, using it as a force for change. For example, reverse mentoring schemes, speak up policies and creating a safe and supportive environment, can be positive ways for facilitating difficult conversations.  

I’m curious to see how the FCA will deliver – can the FCA assess these qualities through senior manager applications or through supervision?  How will the FCA intervene? 

“I would question if any 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.”

Tags

financial services, fca, diversity and inclusion, diversity, inclusion, senior managers regime, regulated funds, private funds, hedge funds, credit funds, alternative afm, institutional asset managers, private equity sponsors

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