It could be argued that firms should be free to make their own choices when it comes to who they recruit and the type of culture they build. Yet in financial services, the regulator is taking a stand and stating clearly that diversity matters. For risk managers, this is poised to be an important topic in terms of regulatory focus for the year ahead.
Last December, it was revealed that the FCA would be examining whether there were links between a firm’s lack of diversity and misconduct.
Whistleblowing on the increase
This followed a sharp rise in whistleblower complaints — up 222% in 2018 — which were ‘non-financial’ and instead connected to areas such as bullying, sexual harassment and homophobia, particularly in City of London firms. The FCA will be looking to see how such complaints are being handled and says it is treating such issues as seriously as other types of wrongdoing such as insider dealing or mis-selling.
Those managers who may have been responsible for allowing unacceptable behavior face sanctions under the Senior Managers and Certification Regime, which is instrumental in shifting responsibility onto individuals.
On the chief executive’s radar
Notably, Andrew Bailey, the FCA’s chief executive, returned to the theme this February, when he made a speech at the PIMFA Wealth of Diversity Conference, in London and he highlighted a number of areas where diversity and culture, including pointing out that the FCA is also focused on the topic internally and is seeking to improve. Points made included:
- Diversity is a core part of how the FCA looks at a firm’s culture but no firm is perfect and all should be focused on learning and improving.
- There is more concern for the different challenges and difficulties of those who are vulnerable in society.
- Personal information is now much more of a commodity — again used to benefit us — but also there can be bad uses, or it can be lost and stolen.
- The FCA will not ‘respect’ institutions simply because they have been around for a long time or that employees come from particular backgrounds. It sees this as meaning a lack of diversity which can lead to ‘narrow thinking’.
- While there are no prescriptive rules on how culture should be developed, it is seen as a business priority and it influences behavior and results in conduct failings. Diversity is seen as an important issue in creating a healthy culture.
An FCA priority
“I always say that I don’t want to work in a place that is full of people like me. Diversity and inclusion help to mitigate the risk of groupthink, and I believe they provide an opportunity for competitive advantage to organizations by helping them to make better decisions and to think in the long-term. Where a culture is open and staff are able to speak-up, decision making is enhanced and risks are flagged.”
With the FCA, some 39% of senior leaders are women, and its target is to get to 45% by 2020 and 50% by 2025. It has also set targets for black, Asian and minority ethnic diversity at senior levels.
For risk managers, under-representation of women and ethnic minorities — and particularly at senior levels — may be impossible to change overnight but the regulator clearly wants to see this as an issue for boards to be taking action on. Setting in place a diversity strategy may well be a sound route to take. While it may previously have been an HR matter, the message now is that a more balanced approach results in better performance, greater resilience and a reduction in risk.