Recommendation 27

HM Government Deferred

We welcome the Committee’s report, Sexism in the City, published on 8 March, and its conclusion that there is an important role for regulators to play in promoting diversity and inclusion. We agree. Greater diversity and more inclusion in the financial services sector would help to advance our operational objectives, improving outcomes for consumers and firms by reducing groupthink. Where firms are diverse and inclusive, we consider they may be able to draw on a greater breadth of knowledge and different perspectives throughout the design and provision of a product or service, as well as improve its decision-making processes. In addition, such firms are better placed to understand and respond to the needs of a broad range of customers. Sound decision-making processes support healthy work cultures, in turn enhancing and protecting the integrity of the UK financial system. The attractiveness of the sector as one in which to build a career is also directly applicable to our new secondary competitiveness objective. The UK’s financial services industry needs to be able to recruit and retain talent from the widest possible pool in order to maintain its position as a global leader. We welcome and agree with the report’s emphasis of the importance of diversity to the sector’s competitive edge. We share the Committee’s concern that progress towards gender balance, while welcome, remains slow. Just 12% of named fund managers, for example, are women. Recent reporting has shown that at some large investment banks in the UK, there has been limited or even negative progress on the reported gender pay gap over the last five to seven years. The Government’s Women in Finance Charter update also showed some encouraging progress in senior leadership representation in a number of firms with further work to do. If regulated firms are not employing the best possible people and supporting their progress, there are potential implications for firms’ governance, decision making and the appropriateness of their resources. It raises questions, too, about firm culture. We are grateful for your positive recognition of the progress the FCA has made in female representation at senior levels where we have met one year early our target for gender parity in our Senior Leadership Team (approximately our top 150 leaders). We are also seeing a continuing and sustained decrease in our mean and median gender pay gaps and the pay gap in relation to minority ethnic women and expect to report further significant improvements over the year 2023/24 in our 2024 Annual Report which will be laid before Parliament later this year. We have worked hard alongside the Prudential Regulation Authority (PRA) to engage with stakeholders about how best we could play a role in this area to achieve our objectives, including through the joint Discussion Paper in July 2021. This received 184 responses from firms, industry organisations, consultancy firms, thinktanks, interest groups, academics, and other individuals. Most respondents to the DP supported regulators taking action to help improve firms’ diversity and inclusion. Evidence from the DP responses, the survey, research, and evidence from other Government initiatives were all carefully considered when formulating the CP policy proposals. Alongside the PRA, we are still working through responses to the consultation and will carefully consider what our role should be in light of the Committee’s views and those of respondents. We will take the time necessary to consider next steps and set out how we have taken the Committee’s report into account when publishing the final policy. Taking into account the Committee’s recommendations, we are now prioritising our work on non-financial misconduct, including sexual harassment and bullying, and it will take some time to fully consider the very wide range of responses we have received to our proposals on diversity and inclusion.