As part of the process of achieving progress towards a fully inclusive industry that values diversity, the Financial Conduct Authority (FCA) carried out a review of the current status of diversity and inclusion policies and strategies at 12 financial services firms. The main goals of the FCA review were to:

• provide a picture of the current approaches to diversity and inclusion, in order to help leaders think about relevant initiatives for their firms;
• encourage further action across the financial services sector; and
• help to develop a supervisory approach to be used for future engagement with firms.

The review found the firms were taking broadly similar approaches and the FCA consistently found several shortcomings.

Generic strategies

Many firms have generic diversity and inclusion strategies which do not take a holistic view. These strategies lack clear actions oriented to achieving the firms' goals. There is also a distinct failure by firms to make full use of the data they collect to identify the best ways to address a lack of diversity and inclusion, or to keep track of the mechanisms that are proving to be the most effective. Some of the firms which are part of international groups also had group-wide international strategies and, because these were not tailored specifically to the UK, they were less ambitious and less well defined. The FCA also considered that there is an overreliance in some firms on measures such as training, employee network groups and allyship, which will not achieve sufficient systemic change, despite their benefits.

Focus on senior leadership

Data has shown that the biggest drop-off in representation takes place between junior and middle management positions. Despite this, firms were not focusing on this issue. They were instead found to be placing an emphasis on improving representation of both gender and ethnicity at senior leadership level. In a number of instances, firms focused almost exclusively on gender representation at senior levels due to the expectations and external targets associated with gender representation. This might indicate that some strategies are driven by compliance rather than a genuine commitment to diversity and inclusion. The FCA is of the view that this focus runs the risk of creating a culture whereby firms compete with each other to secure the same senior talent from diverse backgrounds, instead of developing their own diverse talent internally. A culture which ignores a firm's existing junior talent is likely to be unsustainable and contrary to the objective of achieving meaningful change. Most firms also informed the FCA that senior managers were accountable for progress on diversity and inclusion, and that progress to these goals could affect their remuneration. However, firms were unable to show how, on a practical level, these accountability systems actually functioned.

Variation in data quality

It was found that some firms had much better diversity data than others and this provided them with a better standpoint from which to make decisions and develop further strategies. It appears that a big reason for this variation in data quality is the corresponding variation in staff declaration rates (that is, staff sharing details with their employer of their gender, ethnicity etc.). This variation was found to be attributable to the strategies of the firms themselves, as the reason some had high staff declaration rates was the effort that had been put in to building trust and understanding with staff. A key problem caused by a lack in data quality is that a firm is unable to carry out intersectional analyses to find out more about the unique experiences of different groups of staff.

What can employers do?

The FCA will now be following up with those firms that participated in the review to see how their feedback has been actioned. The FCA has also encouraged other regulated firms to consider the findings of this review and to use them to assess their current diversity and inclusion practices and ensure those strategies are, in fact, effective. For other employers, given the importance of diversity and inclusion for healthy firm cultures, better consumer protection and market integrity, the review also provides much food for thought. Despite the progress that has been made over the years, more tangible change needs to take place.

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