This follows recommendations made by the Treasury Committee yesterday, stating that regulators should consult with the industry on all policy changes.
Suggestions such as targets for representation, linking remuneration to diversity and inclusion metrics and measures to make senior leaders directly accountable are among the proposals mentioned in the paper.
It also considers how regulators should approach diversity and inclusion when it comes to non-financial misconduct.
The regulators said they believed increased representation would accelerate statutory objectives by resulting in better governance, decision making and risk management within firms. They also suggested it would lead to an innovative industry with products and services more suited to the diverse needs of consumers.
To assess progress, it has been proposed that firms collect data about their workforce.
Prior to this, there will be a one-off pilot survey later this year to form policy suggestions and test how firms can provide data with the intention to consider regular reporting in the future.
The regulators are also asking for views on how any changes could be tailored to specific categories of firms, to ensure it is proportionate.
Sam Woods, deputy governor for prudential regulation and chief executive of the PRA, said while some progress had been made in some parts of the financial services sector over the last decade, the discussion around representation was still in its early stages and needed to be sped up.
He added: “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.
“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. I encourage firms and other interested stakeholders to give us their views on our proposals.”
Nikhil Rathi, chief executive of the FCA, added that regulators were concerned a lack of diversity and inclusion weakened the quality of decision making.
Jon Cunliffe, deputy governor for financial stability at the Bank of England, said: “Diversity and inclusion is beneficial for financial stability. Groupthink and overconfidence are often at the root of financial crises.
“Enabling a diversity of thought and allowing for an array of perspectives to coexist supports a resilient, safe and effective financial system.”
The discussion paper is open until 30 September 2021. The feedback and data will be used to form proposals, with a joint consultation planned for Q1 2022.