The Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), and the Bank of England have announced regulatory plans to improve diversity and inclusion in financial services.

The regulators and central bank have set out policy options in a discussion paper, which include the use of targets for representation, measures to make senior leaders directly accountable for diversity and inclusion in their firms, linking remuneration to diversity and inclusion metrics, and the regulators’ approach to considering diversity and inclusion in non-financial misconduct.

To assess progress the three industry authorities are proposing collecting data from firms about their workforce.

The paper focuses on the importance of data and disclosure in order to enable firms, regulators and other stakeholders to monitor progress.

Prior to 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 and test how firms’ can provide data with a view to considering regular reporting in the future.

“We are concerned that lack of diversity and inclusion within firms can weaken the quality of decision-making,” said chief executive of the FCA, Nikhil Rathi. “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.”

The FCA, PRA, and the Bank of England said that increased diversity and inclusion will advance their statutory objectives by resulting in improved governance, decision-making and risk management within firms, a more innovative industry, and products and services better suited to the diverse needs of consumers.

“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,” said Sam Woods, governor for prudential regulation and chief executive of the PRA. “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.”

Woods added: “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.”

Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England, said that diversity and inclusion is beneficial for financial stability.

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

The regulators are asking for views on how any changes could be tailored to specific categories of firms to ensure it is proportionate.

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