FCA: A Move Towards Diversity and Inclusion Enforcement?
Nikhil Rathi, the FCA's(Financial Conduct Authority) CEO, talked about why diversity and inclusion are regulatory issues at the presentation of the HM Treasury Women in Finance Charter Annual Review last week.
Mr Rathi made a convincing argument for inclusion in all forms, including race, sexual identity, disability, and social history, at an event focused on gender equality. Diversity has a good business argument, according to evidence. According to McKinsey report, organizations with the most diversity are 35 percent more likely to outperform those with the least diversity. Diversity not only increases a company's efficiency, but it also decreases the risk of wrongdoing. Lack of diversity in firms raises concerns about the firm's ability to effectively respond to the needs of its customers (particularly the most vulnerable) and increases behavior risk; firms that do not represent community risk delivering inadequate service to diverse populations. Diversity and inclusion become regulatory concerns at that point.
The FCA is leading by example in terms of diversity and inclusion as an employer; it has set ambitious goals and is committed to increasing the diversity of its workforce and ensuring an inclusive community. As a regulator, the FCA also wants the companies and industries it regulates to follow suit. The FCA and the PRA are collaborating to formalize their legislative approach to diversity and inclusion so that their priorities are transparent. Firms and their senior executives should expect the FCA to ask more difficult questions about equality in their organizations, as well as whether their workplace is transparent and welcoming, and whether it offers a healthy environment for colleagues at all levels. Finally, the FCA views diversity and inclusion as a matter of justice as well as a critical way to improve customer outcomes.
Mr Rathi cautioned that if the FCA does not see changes in senior-level diversity and clearer solutions to its diversity and inclusion concerns, it will decide how to effectively employ its powers. The FCA has supervisory capabilities at its disposal, such as extending the scope of senior manager applications to include awareness of management team diversity and the inclusiveness of the management community they build. The workings of capital markets must also be investigated, including whether diversity criteria can be included in premium listing regulations.
While the particulars on what the FCA and the PRA(Pruduntial Regulatory Authority) plan in terms of diversity and inclusion are yet to be seen, it is obvious that this topic is creeping up the regulators' priority list, and companies and their senior managers can follow suit if they haven't already.