Banks on both sides of the Atlantic are feeling the heat, as regulators ramp up their focus on diversity and inclusion goals.

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Despite years of banks’ diversity and inclusion (D&I) policies, the lack of ethnic minorities, women and other underrepresented groups on boards and management teams persists in the financial industry, as does gender and ethnicity pay gaps. But this may be about to change, as financial regulators in the UK and US have recently announced plans to increase oversight on D&I to speed up the pace of transformation within the industry.

In the UK, the Financial Conduct Authority (FCA), Prudential Regulatory Authority and the Bank of England launched a consultation paper on July 7, which seeks views on 29 questions covering areas such as scope and proportionality, accountability, targets, training and linking remuneration to D&I objectives. The consultation is open until September 30. (Read Chris Finney’s opinion piece for more analysis.)

The paper also emphasises the importance of data collection, monitoring and reporting to measure progress. All UK regulated financial entities would be required to disclose a selection of aggregated diversity data on their senior management and workforce as a whole, as well as their diversity and inclusion policies, so that other firms and stakeholders can benchmark progress. The regulators propose to launch a one-off, voluntary pilot data survey in autumn 2021.

Banks need to step up their efforts and lead from the front, as scrutiny of diversity and inclusion policies is certain to expand

Following close on the heels of the UK watchdogs, on July 29 the New York State Department of Financial Services (DFS) signalled its intention to increase its oversight of D&I in the banking and non-depository financial industries.

The DFS plans to collect data on the gender, racial and ethnic composition of boards and senior management from New York-regulated banks and other non-bank financial institutions with more than $100m in assets, as well as regulated cryptocurrency firms. The data will be collected in the fall of 2021 and published on an aggregate basis in the first quarter of 2022.

In order to help firms improve their efforts, the New York authority will organise a webinar focused on D&I and equity best practices and address specific issues that the industry has encountered in its diversity efforts.

This type of assistance is important to encourage institutions to make real progress on D&I, not just dismiss it as another box-ticking exercise. Other organisations are also developing D&I tools to help measure and benchmark efforts. For example, in mid-July the UK’s Financial Services Skills Commission launched its Inclusion Measurement Guide to improve inclusion data metrics and analysis. The previous month, Tech Nation released its D&I Toolkit for the technology and fintech community.

Banks need to step up their efforts and lead from the front, as this scrutiny of D&I is certain to continue and expand. At the end of July, the FCA proposed changes to its listing rules as a way of improving transparency on the diversity of listed company boards and their executive management teams. On August 6, the US Securities and Exchange Commission approved Nasdaq’s proposal for a new listing rule on board diversity disclosures.

 As DFS superintendent Linda Lacewell said: “Particularly in the wake of a changing society affected by the Covid-19 pandemic, racial injustice and climate change, it is now more than ever paramount that the banking and financial industries have strong boards and executive teams comprised of people with diverse experiences, skills and perspectives in order to better confront evolving risks and find new opportunities. Let’s make good on our words and move to action.”   

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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