Diversity and Inclusion  

Regulators mull linking exec pay to diversity targets

Regulators mull linking exec pay to diversity targets

The Financial Conduct Authority, Prudential Regulation Authority and Bank of England have come together to set out plans to improve diversity and inclusion in financial services.

In a discussion paper published today (July 7), the regulators set out policy options to engage with firms and stakeholders on how the industry can accelerate the pace of change on diversity and inclusion.

Policy options include the use of targets for representation, with measures to make senior leaders directly accountable for diversity and inclusion in their firms. 

These measures include linking remuneration to diversity and inclusion metrics and the regulators’ approach to it in terms of non-financial misconduct. 

In the discussion paper the FCA said: “We recognise that the financial sector has taken steps forward on diversity and inclusion. However, there is much more that needs to be done to create truly diverse and inclusive organisations that meet the diverse needs of those we serve. 

“Likewise, we recognise that we have more work to do ourselves to improve the diversity and inclusion of our own institutions.

"We believe that, in parallel, it is important and timely to open a discussion on how we can use our central roles in industry to drive wider change across UK financial services markets.”

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

The regulators believe that increased diversity and inclusion will advance their statutory objectives by resulting in improved governance, decision-making and risk management within firms. 

Sam Woods, deputy governor and chief executive officer of the PRA, said: “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. 

“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.

"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.”

Woods added: “The paper we have published today is intended to start a new conversation with firms about how we can best move forward across the sector, while we also take steps to improve diversity and inclusion within our own organisations.”

The regulators are looking for ideas on how any changes could be tailored to specific categories of firms to ensure they are proportionate.

The FCA said more diversity would create a more innovative industry with products and services better suited to the diverse needs of consumers.

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

“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.”