"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"
As part of its regulatory work on diversity and inclusion and the listings framework, the FCA is exploring whether to make diversity requirements part of its premium listing rules.
During a speech given at the Women in Finance Charter Annual Review, CEO Nikhil Rathi said that "diversity will be crucial in our consideration of vulnerability, particularly as we come out of a pandemic that has disproportionately affected women and people of colour".
The FCA is currently working with the Prudential Regulation Authority on a joint approach to D&I for all financial services firms.
Rathi said the FCA will "be asking tough questions" to firms about representation across grades and whether their culture is open and inclusive and provides a safe space for colleagues at all levels of the organisation.
While attitudes are shifting, Rathi said that women still receive 28% less pay than men and account for only 17% of those approved by the FCA.
Additionally, fewer than 1 in 10 management roles in financial services are held by Black, Asian or minority ethnic people. The Parker Review reported that there were only 80 directors of colour in the FTSE250 - 5% of the total. Rathi added that the number of women of colour in senior positions in financial services "is a particular concern".
In the FCA's recent guidance on vulnerability, it said that all firms needed to understand the needs of their customers and be able to respond to them through product design, flexible consumer service and communications.
Rathi responded: "I would question if any firm can adequately respond to the needs of these consumers if they do not have the diversity of background and experience required to overcome biases and blind spots.
"We are working with the Prudential Regulation Authority to formalise our regulatory approach to diversity and inclusion under that duty and our objectives - and then to make our expectations clear.
"As part of our work on wholesale banking culture, we introduced five conduct questions to help focus minds of senior managers on conduct risk. I would like to see this expanded – and a sixth added – for all firms: 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?"
Rathi said that this is "much broader than representation" and is about a firm's culture in relation to diversity and inclusion.
He added: "In the years ahead, if we don’t see improvements in diversity at senior levels and better answers, we will also consider how to best use our powers. This is something we will consider over the next year.
"There are supervisory tools we can draw on. 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.
"In the US, we have seen the Nasdaq take the lead with its listing rules, which will require all companies listed on its US 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."
In conclusion, Rathi asked: "I would encourage all capital markets participants to consider the reasons why there are so few female CEOs and CFOs or CEOs and CFOs of colour presenting during IPOs or when capital is being raised – are there challenges in the culture of private equity, underwriting, equity syndication? What more can we do to sponsor and celebrate female business leaders and entrepreneurs?
"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."