More inclusion and diversity in the financial services industry are important priorities of the FCA's business plan for 2022 to 2025. Regulators are taking a more hands-on approach to encourage business practices that deliver it in financial services.
The FCA surveyed 12 firms across multiple sectors to gain a better understanding of how they were approaching diversity, equality, and inclusion (DEI). The regulator reports that many firms had been surprisingly consistent across their DEI frameworks, and had taken the initiative to develop an approach that catered to some of their internal needs, which highlighted good progress. However, they also felt that although many firms had taken action to create a strategy, a majority of frameworks appeared generic and failed to either account for the comprehensive purpose of the regulation or adopt a holistic viewpoint to reflect this ambition.
In practice, firms lacked a clear expression of their aspirations for DEI and the necessary actions to achieve their diversity goals, so they were unable to capitalise on the data they collected to identify the best solutions.
Challenges in diversity, equality, and inclusion
In the view of the FCA, firms who fall behind on their DEI measures and fail to recognise their targets could face major setbacks. For one, they're at greater risk of liability exposure. By failing to create a harmonious work environment that embraces perspective and unique voices, you become more likely to create blind spots internally to identify potential challenges. This is less likely to occur if you have a group of individuals from diverse backgrounds who can provide a fresh perspective on internal matters and, to some extent, mitigate groupthink.
Additionally, a lack of strong DEI measures has the potential to negatively impact the services provided by the firm and lead to potential reputational damage. The FCA, therefore, encourages a wide range of perspectives to negate this issue and ensure that different voices provide input firm from the top down across a range of issues, and lay the foundation for a more harmonious work culture.
The trend that the FCA felt was most apparent was the overreliance on gender balance at the senior level, with representation at junior to mid-level roles getting less traction. This focus on leadership roles is likely due to the fact there were external targets and expectations already in place for these positions.
In the view of the FCA, this showed a lack of understanding around the purpose of an inclusive work environment that ultimately creates long-term problems in establishing a diverse pool of talent. Their data also showed that many firms didn't have strategies in place that clearly linked their diagnosis, action, and measurement, giving the impression they were unclear about their business drivers for better DEI measures. The most developed strategy found in the survey revolved around gender, most likely due to the availability of data and external target focus. However, the FCA felt that similar steps were not taken for other characteristics, with comparatively light emphasis put on their significance and strategies in place to reflect this.
Additionally, many firms had failed to take steps to address social mobility, often only making changes at an entry-level point. This meant that the cultural experience of employees from less socially privileged backgrounds was being overlooked, and was likely also a factor in limiting progress for some ethnic minorities. They also highlight inclusivity in sexual orientation and disability as areas that still require major improvements.
The regulator's emphasis on disability inclusion has been echoed with calls for inclusive reporting on ESG and disability data specifically, highlighting where firms have failed to create action and meet FCA expectations.
Meeting their requirements and making actionable changes to improve internal culture requires recalibrating how you view materiality within your organisation to incorporate disability inclusion into assessments and risk-mitigation practices. Firms must play their role in reducing inequalities for both employees and their consumers living with disabilities by improving access to services. In turn, this approach would showcase a fundamental understanding of diversity and the benefits of providing access to minority groups.
This is actionable through supporting people with disabilities to engage in your operations, such as digital accessibility or attending a physical retail location. This also requires improving opportunities for disabled individuals to be represented within firms and providing capabilities that allow them to thrive in the work environment, eg, additional support as needed. Achieving DEI targets requires broad consideration of those with different life experiences and empowering them to access opportunities available to others, to create a more balanced and fair work culture.
Remuneration and regulation: driving positive culture
Taking a holistic viewpoint also requires realising and understanding that each individual may experience a range of different types of discrimination. This requires a welcoming and accessible approach to talent that nurtures a diverse workforce and retains them by encouraging and embracing a firmwide culture of inclusion and diversity initiatives.
You can use this starting point to build a strong set of data and collaboration tools to understand the effectiveness of these practices and encourage employees to feel comfortable sharing data and cultivating a culture of transparency that encourages progress.
In the view of the FCA, firms are likely to struggle to make sustainable and impactful changes without a healthy culture. This is why you should invest in a DEI strategy that's aligned to your organisational purpose and mission, underpinned by measurable actions and goals, and supported by senior executives, to act as a catalyst for building a more inclusive and diverse workforce.
For more insight and guidance, get in touch with Tina Bhardwaj.