Sexism in the City

Our inquiry has revealed incremental improvements for women working in financial services on certain metrics, such as the proportion of women holding senior roles. Overall, there has been a disappointing lack of progress on sexual harassment and bullying, including serious sexual misconduct. Despite the best efforts of some far too little progress has been made and serious problems which should have been rooted out still persist. Significant concern remains, however, about the overall culture prevalent within the sector that holds back progress for women. While this Report deals with various challenges experienced by women in financial services, whether related to pay, harassment or maternity leave, as examples, it is this cultural deficit that allows them all to persist. Culture is also the most difficult area to seek to reform. (Paragraph 5) Diversity and inclusion

There have been some positive signs of improvement in the senior representation of women in some firms and sectors within financial services since 2018. We commend both the Financial Conduct Authority and the Bank of England for leading by example in significantly increasing female representation at their most senior levels. But progress is still too slow and patchy, with some sectors in which there has been no improvement at all. It cannot be right, for example, that in 2024 just 12% of named fund managers in the UK are women.

The Treasury’s Women in Finance Charter has played an important role in driving the conversation on gender diversity and increasing accountability for signatory firms. Even so, progress on increasing female representation has been too slow. We believe that the scope of the Charter should be extended to help drive more meaningful change within financial services firms.

In particular, the focus of the Charter on female representation at just the senior management level is too narrow. There needs to be greater focus on ensuring there is a pipeline of female talent to support long-lasting, sustainable improvement in gender diversity in the sector. We therefore recommend that the Treasury extends the scope of the Women in Finance Charter to cover female representation at different levels of seniority.

We heard that linking senior executive pay and bonuses to performance on diversity and inclusion can be an effective way to incentivise change, though this practice is not currently widespread. One of the Women in Finance Charter principles is for firms to have an ‘intent’ to link pay to delivery on gender diversity targets. Eight years on from the launch of the Charter, we think it is now time to sharpen this principle to increase its effect. We therefore recommend making the link to executive pay a firmer commitment under the Charter, on a ‘comply or explain’ basis.

First and foremost, it must be the responsibility of firms, boards and investors to drive improvements in diversity and inclusion, particularly given the clear evidence that 40 Sexism in the City more diverse firms achieve better results. We heard that many firm-level initiatives aimed at improving diversity and inclusion were often not treated in the same way as other core business priorities. We encourage firms, boards and investors to put this right and ensure diversity and inclusion is given the same focus as any other core business priority. The lack of progress in the past five years cannot be tolerated indefinitely. The loss of potential is just too great.

We welcome the focus of the PRA and FCA on diversity and inclusion in financial services, and agree they have a role to play. We have concerns, however, about their proposals to require firms to implement strategies, collect and report data and set targets. These requirements would be costly for firms to implement and have unclear benefits, while not capturing the many smaller firms that we have heard have some of the worst cultures and levels of diversity. We are also concerned that the requirements would be treated by many firms as another ‘tick-box’ compliance exercise, rather than necessarily driving the much-needed cultural change. Instead, we recommend that all financial services firms, particularly private businesses, hedge funds and other smaller firms, sign up to the voluntary Women in Finance Charter.

We recommend that the regulators drop their plans for extensive data reporting and target setting. In our view, a lack of diversity is a problem that the market itself should be able to solve without such extensive regulatory intervention. Boards and senior leadership of firms should take greater responsibility for improving diversity and inclusion given that it should lead to a competitive advantage in the development of talent. Firms that perform best on diversity and inclusion and have the best cultures should be able to benefit from the clear business advantages this provides, leaving those that perform badly in these areas to suffer the consequences for their reduced competitiveness and profitability. (Paragraph 48) Barriers facing women

It is clear that maternity remains a significant barrier to women in financial services, with too many women leaving the industry after having children. We have heard that increased availability and take-up of paternity leave and shared parental leave by men can have a significant impact on reducing this barrier by fostering a more equal sharing of childcare responsibilities. Increased transparency around the maternity, paternity and parental leave offered by firms would also incentivise improvement in this area and allow both men and women to take account of these policies when moving roles, without having to ask for them during job interviews.

We recommend that the Government and regulators encourage all firms to consider equalising their offer of parental leave for men and women, and to actively encourage more men to take it up. We also recommend that the Government and regulators encourage firms to be transparent about their maternity and parental leave policies, including when advertising roles, by publishing them on their company websites.

Hybrid working spread accidentally and unplanned as a result of the Covid pandemic and the full benefits and costs of new hybrid and remote working arrangements continue to be identified. Those arrangements have, however, provided substantial Sexism in the City 41 new opportunities for more flexible working patterns from which women, particularly those with children or other caring responsibilities, have benefited. There is a risk that those benefits will be lost if financial sector firms push back towards “presenteeist” office working cultures without considering what has been gained, especially for women.

There are also risks that women lose out on promotion or pay progression possibilities if the change in practice towards hybrid and remote working is not accompanied with a change in the culture of firms and the mindset of managers towards ensuring equal opportunity and treatment between those who work more of their hours at home and those who work more in the office.

We recommend that the Government and regulators encourage firms to undertake equality impact assessments on their flexible working policies and the interaction with diversity and inclusion within their firm.

We recommend that the Government and regulators encourage firms to advertise as many roles as possible to be available on flexible and part-time bases, as a way to attract and retain as wide a talent pool as possible, especially women.

Welcome progress has been made in recognising the effect of the menopause and in identifying ways of assisting those affected to overcome the challenges it presents without having to leave their jobs. That progress, as in other areas of this Report, needs to be taken further.

We recommend that Government continue to encourage firms to recognise the impact of menopause and to establish policies and support for those who are affected to ensure that their experience and talents are not prematurely lost from the industry. (Paragraph 82) Pay

The financial services sector is well paid compared to many other industries, but it has the largest gender pay gap of any sector in the UK economy and that pay gap is reducing at such a glacial pace that it could take 70 years to close it at the current rate of progress. That is simply not good enough for such an important sector of the UK economy, and it is clear that further specific action targeted at reducing pay gaps is required.

Given that gender bonus gaps are typically even larger than gender pay gaps, we are concerned that the removal of the bankers’ bonus cap could increase the difference between the overall take-home pay of men and women in financial services, especially given that pay gap reporting appears to provide little incentive against this. We recommend that the PRA and FCA monitor this closely, and formally review the impact of the bonus cap removal on gender pay inequality in two years’ time.

Gender pay gap reporting has increased transparency around pay gaps, but it has not incentivised firms to take action to reduce pay gaps in the way that had been hoped and we are concerned by the evidence we heard that suggests large pay gaps in financial services have come to be accepted as the ‘norm’. (Paragraph 106) 42 Sexism in the City

We therefore recommend that the Government strengthens the pay gap reporting regulations to incentivise firms to make faster progress. Specifically, we recommend it be made mandatory for firms with a pay or bonus gap above a certain threshold to publish a narrative explaining the drivers of the gap(s) and an action plan for how they will reduce them. We also recommend that the employer size threshold for pay gap reporting be reduced from 250 employees to 50 employees, at least for firms in financial services given the extent of the problem in this sector.

We repeat our predecessor Committee’s recommendations that the Government considers amending the pay gap reporting guidance so that partners’ remuneration is included, and that the granularity of pay gap reporting be increased to provide more clarity around where pay gaps exist within firms and incentivise more targeted action to reduce them.

We have heard compelling evidence that a lack of pay transparency, particularly at the recruitment stage, exacerbates and perpetuates gender pay gaps. It is vital that employees are paid based on their experience, skills and value to an organisation, rather than on their prior salary or ability to negotiate.

While we recognise the Government’s plans for a pay transparency pilot as a first step to exploring these issues, we are concerned by the lack of progress since the pilot was announced two years ago. Given the very clear case for action, the Government should act now rather than await the outcome of a pilot scheme that will include just a single organisation. We recommend that the Government introduces legislation to mandate the inclusion of salary band information on job advertisements, and to ban prospective employers from asking for salary history as part of the job application process. (Paragraph 110) Sexual Harassment

We have been appalled by testimonies we have received about the prevalence of sexual harassment in the financial services industry, including from some of the brave women who told us about their experiences at our own private roundtable event. Although sexual harassment against women is a societal problem, it is worse in financial services than in many other sectors. This is completely unacceptable, and it is clear that further urgent action is required.

Firms need to adopt a zero-tolerance approach towards sexual harassment and abuse and take concrete action to embed this approach within their organisations. Impunity for perpetrators, who are often well known in their organisations for serial offending, must end. As well as being the right thing to do, several high- profile cases in 2023 show the potential negative impact on a firm if it fails to tackle sexual harassment by its staff. Senior leadership and boards need to take ownership of this issue and ensure that processes for handling complaints result in thorough investigations, protect those making the allegations, and result in appropriate consequences for those found to have perpetrated abuse or harassment. Firms should consider whether their human resources departments are able to fulfil this function, or whether there is a need to establish a separate, more independent process that reports directly to the senior leadership or board. (Paragraph 157) Sexism in the City 43

It is also important that firms tackle the ‘softer end’ of abusive behaviour and ‘microaggressions’ against women in order to create an inclusive culture in which even low-level bullying or harassment is seen as unacceptable. Firms should consider what steps they can take to achieve this, including the use of appropriate training, such as unconscious bias training and active bystander training.

It is vital that sexual harassment is viewed as a problem for everyone to solve, including men. Firms should do all they can to develop a culture in which men are encouraged and incentivised to act as allies and role models, and where men as well as women are encouraged to challenge and report instances of sexual harassment and abuse.

We have heard that whistleblowing processes within financial services firms are often ineffective at tackling bad behaviour or protecting those who report harassment. The Government is undertaking a review of whistleblowing laws, and we strongly recommend that the Government seeks to strengthen whistleblowing legislation to provide greater protection and support to whistleblowers in sexual harassment cases.

The new Worker Protection Act imposes a new duty on firms to prevent sexual harassment. We hope that this legislation has the desired impact of incentivising firms to take greater action to prevent harassment in the workplace, and we will monitor closely its effectiveness at reducing cases of sexual harassment in financial services.

Given the potential overlap between the aims of the Worker Protection Act, which will be enforced by the Equality and Human Rights Commission (EHRC), and the proposals by the Financial Conduct Authority (FCA) on handling sexual misconduct in financial services, we recommend that the EHRC and the FCA clarify how they will work together to enforce the Worker Protection Act.

There is an important role for regulators to play in ensuring that firms tackle sexual harassment. We welcome the proposals by the Financial Conduct Authority and by the Prudential Regulation Authority to strengthen their regimes for tackling non-financial misconduct, including sexual misconduct. We note, however, that the regulators are constrained by their legal powers to take action, and acknowledge that they cannot take action in financial services that goes further than allowed for in wider employment and criminal law.

There is limited awareness of the FCA’s whistleblowing line or how it works, and we believe there is scope to enhance its effectiveness and reduce the ‘fear factor’ victims of harassment face when reporting abuse.

We recommend that the FCA launches an awareness campaign to publicise the availability of its whistleblowing line and clarify the circumstances in which it can be used, including that nothing in a non-disclosure agreement can prevent an individual from reporting harassment to the FCA. This could be part of a wider campaign to map out the different options available to women suffering abuse or harassment in financial services. (Paragraph 165) 44 Sexism in the City

The widespread misuse of non-disclosure agreements (NDAs) in sexual harassment cases is shocking. NDAs have the effect of silencing the victim of harassment when they are forced out of an organisation, while protecting the perpetrator and leaving them free to continue their career.

We are pleased that the Government is looking at ways to prevent this abusive use of NDAs, and we recommend the introduction of legislation to ban the use of NDAs in harassment cases.

In the meantime, we recommend that the FCA collect data on the use of NDAs by regulated firms in cases of non-financial misconduct. This will provide a more detailed, quantitative picture of the extent of their use in financial services in harassment cases, which could provide valuable evidence to support further action. (Paragraph 168) Sexism in the City 45