diversity and inclusion

UK regulators are developing diversity policies and planning to roll them out in a way that will affect every corner of every bank.

chris finney

The Bank of England (BoE), Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) recently published a discussion paper titled ‘Diversity and inclusion in the financial sector’.

You may have seen the headlines, read about the “ban” on references to “Chinese walls”, and moved on.

That would be a reasonable response to some of these papers. But it could be a mistake on this occasion. Why?

The regulators are developing their diversity and inclusion (D&I) policies and planning to roll them out in a way that will affect every corner of every bank, no matter its size, or type. If implemented, the regulators’ proposals will make every bank chair and chief executive more obviously, and more directly, accountable for D&I on the bank’s board; in the wider leadership team; in every customer-facing team; and in every other part of the bank.

The regulators are considering whether to require banks to appoint a minimum number of directors to their boards, to make more room for diversity of thought. Successful (and compliant) banks will have a D&I policy that reaches into, and genuinely affects, recruitment and succession planning across the whole the organisation. Succession planning will no longer be a tool that is used to ensure stability and continuity at the top of the bank. It will also be a way of enabling the bank to become more diverse and inclusive, and of making sure it stays that way.

As these policies take shape, banks will be expected to gather, study, report and publish a much wider range of D&I data than they do today. This will eventually lead to peer benchmarking by regulators, shareholders, customers and employees. Chairs, chief executives, HR directors and others also will have their remuneration adjusted as D&I becomes a more significant part of the non-financial performance metrics on which their salaries and bonuses depend.

Banks that are not sufficiently diverse and inclusive will not have the non-financial resources they need to meet the regulators’ threshold conditions

In the new world, banks that are not sufficiently diverse and inclusive will not have the non-financial resources they need to meet the regulators’ threshold conditions. These ‘failing’ banks will be forced to recruit to diversify and, if they fail, they could be closed down. At the same time, aspiring challenger banks will struggle to get authorised if they are not sufficiently diverse and inclusive at the outset, and cannot show that they will remain sufficiently so over time.

There are two other things that are especially interesting from a Senior Managers Regime point of view. First, the regulators are seriously considering whether, when and how they will decide not to approve a senior bank appointment, not because the particular candidate lacks anything, but because the bank needs more diversity, and this particular candidate is too much of a kind to help. And second, because the FCA has long said that it does not, and that banks should not, regard bullies and those who discriminate as “fit and proper persons”; it is now saying that it is merely considering whether these issues “could affect [fitness and propriety] assessments”, instead.

That is a statement that is likely to be seen as both unhelpful by those who have struggled to get their banks to meet the FCA’s prior expectations, and as a significant retreat from the regulator’s prior position on this point. 

To be fair to the three regulators, this is a well-researched discussion paper, even if its house style makes it longer and more repetitive than it needs to be. The regulators accept that they do not have enough diversity yet. They also accept that “one size will not fit all”, that proportionality matters, and that incoming banks will sometimes find it especially difficult to comply because cultural norms and expectations in other jurisdictions are likely to be different.

Discussion papers are meant to be thought provoking, and this one is certainly that. They usually include questions — this one has 29 and raises many more. For example: why is this initiative starting with, and apparently being restricted to, the financial services sector? Is it really appropriate for the BoE, the PRA and the FCA to lead on these issues? And can they really be trusted to get these things right?

As a lawyer, I am also wondering how they have satisfied themselves that they are legally entitled to do what they are planning to do, and assuming they will need the government’s help, when the government has so many more things to do. These are important questions, not only because D&I is important, but because some individuals have already fallen into the expectation gap created by the FCA’s prior position on fitness and propriety. Others are likely to be affected by the unintended consequences of these plans. It makes sense, therefore, to read this particular discussion paper, however difficult that might be. It probably also makes sense to reply to it, if you can.

Chris Finney is a partner at the law firm Fox Williams.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter