Nikhil Rathi (pictured), chief executive of the FCA, said the watchdog was drawing up new regulations for firms to follow and if diversity improvements were not made it would take action.
The regulator is considering adding to its conduct risk questions for managers and looking at ways it can use its supervisory powers to crack down on firms not following the new regulations.
Speaking at a launch event for the Women in Finance Charter Annual Review, Rathi said that there had been improvements in female financial representation since the Charter was introduced by the Treasury, following Jayne-Anne Gadhia’s 2016 review of women in financial services.
The objective of the charter is to tackle the issue of a lack of gender diversity in senior management positions in financial services. Firms signing up to the charter are, among other commitments, pledging to set internal targets to increase the number of women in senior roles and publishing their progress annually on their website.
More to do
In the five years since the charter was launched, 35 per cent of the 209 signatories that committed to its objectives before September 2019 have met their targets and 36 per cent are on track to meet them, research from think tank New Financial revealed.
However, although 62 per cent of firms that have signed up to the charter said they have seen the numbers of women in senior management improve, among those firms women still accounted for less than a third of senior management.
The lack of women of colour in senior financial services positions, said Rathi, was “a particular concern”.
“This lack of diversity at the top raises questions about firms’ ability to understand the different communities they serve, and their different needs,” he said.
The FCA’s first step is to formalise its regulatory approach to diversity and inclusion and then to spell its expectations to the market.
Rathi wants to expand the conduct risk questions that senior managers of all firms must consider to include one that asks, “is your management team diverse enough to provide adequate challenge and do you create the right environment in which people of all backgrounds can speak up?”
Over the next 12 months, if firms haven’t improved it will look at how it can use its supervisory powers to force change.
“There are supervisory tools we can draw on,” said Rathi. “For example, I want to consider whether the diversity of management teams, and the inclusivity of the management culture they create, could be part of our consideration of senior manager applications.”
The FCA is also considering using a similar approach taken by the Nasdaq, a stock exchange in the US, which requires all companies listed on the exchange to have, or explain why they do not have, at least two diverse directors.
“As part of our regulatory work on diversity and inclusion and the listings framework, we will be exploring whether we should make similar requirements part of our premium listing rules,” he said.
FCA falls short
Rathi admitted that the FCA had fallen short of meeting its own female leadership targets. The regulator said it had set “ambitious targets” to have 45 per cent its senior leadership team made up of women and half by 2020.
“That we missed our 2020 target by five percentage points shows we too have work to do,” he added.
As an employer, Rathi said the FCA was “determined” to improve its diversity.
He said: “As a regulator, we want the same from the firms we oversee and in the markets we regulate. Not because it is a social good – although, frankly, that should be enough. We care because diversity reduces conduct risk and those firms that fail to reflect society run the risk of poorly serving diverse communities. And, at that point, diversity and inclusion become regulatory issues.”