The regulators’ discussion paper is open until 30 September 2021 - any feedback and data received will be used to develop detailed proposals around D&I

The Chartered Insurance Institute (CII) has backed regulators’ plans seeking to improve diversity and inclusion (D&I) in the financial services sector. 

The regulators, including the FCA, Prudential Regulation Authority (PRA) and the Bank of England, have set out new policy options within discussion paper DP21/2, outlining the potential use of targets for representation, measures to make senior leaders directly accountable for diversity and inclusion in their firms and plans to link remuneration to D&I metrics.

The paper also explores the regulators’ approach to diversity and inclusion concerning non-financial misconduct.

Matt Connell, director of policy and public affairs at the CII, said: “Building a modern, diverse and inclusive profession has been a core focus for the CII and today’s joint announcement from financial services regulators is a welcome one.

“Since 2019, chartered firms have had to implement a diversity and inclusion policy.

”To ensure these policies are delivering positive change, 2021 was the first year the CII requested examples of the impact the approaches are having on chartered firms when they wish to renew their status.

”To support our united profession, we have issued extensive guidance on approaches firms could take to establish an inclusive culture and one which delivers fair outcomes for consumers.

”We believe the insurance profession should take account of and reflect the interests of all the people it serves. Therefore, we look forward to continuing to work with the regulators on this important work.”

The regulators are asking for feedback on how any changes to improve D&I in the financial services industry could be tailored to specific categories of companies, to ensure suggested measures are proportionate.

The discussion paper is open until 30 September 2021 - any feedback and data received will be used to develop detailed proposals. A joint consultation from the regulators has been planned for quarter one next year. 

Data and disclosure 

The regulators’ discussion paper also focuses on the importance of data and disclosure, to enable firms, regulators and other stakeholders to monitor progress in D&I.  

The regulators believe that increased diversity and inclusion will advance their statutory objectives by improving governance, decision-making and risk management within firms, create a more innovative industry and lead to products and services that are better suited to the diverse needs of consumers.

To assess progress here, the authorities are proposing collecting data from firms about their workforce.

Ahead of this, there will be a one-off pilot survey later this year, which will help to develop the proposals set out in the discussion paper - the survey will test how firms can provide data, with a view to implementing regular D&I reporting in the future.

Nikhil Rathi, the FCA’s chief executive, said: ”We are concerned that [the] lack of diversity and inclusion within firms can weaken the quality of decision-making. We look forward to an open discussion on how we should use our powers to further diversity and inclusion within financial services, to the mutual benefit of firms and their customers.”

Sam Woods, deputy governor for prudential regulation and chief executive of the PRA, added: ”While some progress has been made to improve diversity and inclusion in parts of the financial services sector over the last decade, the discussion is still in its early stages and more needs to be done to speed up progress.

”Regulators and industry need to work together to increase diversity at senior levels and ensure that the UK’s financial services firms are best equipped to serve the economy.

”A lack of diversity of thought can lead to a lack of challenge to accepted views and ways of working, which risks compromising firms’ safety and soundness.

”The paper we have published is intended to start a new conversation with firms about how we can best move forward across the sector, while we also take steps to improve diversity and inclusion within our own organisations. I encourage firms and other interested stakeholders to give us their views on our proposals.”

Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England, noted the benefits of diversity and inclusion for financial stability. 

He continued: ”Groupthink and overconfidence are often at the root of financial crises. Enabling a diversity of thought and allowing for an array of perspectives to coexist supports a resilient, safe and effective financial system.

”The paper we have published invites a discussion on our thinking on how the industry, including Financial Market Infrastructure firms (FMIs), can develop its approach to diversity and inclusion, in line with our objective to ensure sound, robust financial markets.”