Observations on D&I strategies in financial services
The FCA recently published its findings on diversity and inclusion practices in regulated firms. It noted that all firms were early on in the development of their D&I approaches typically only having started serious efforts in 2019/ 2020, and whilst progress has been made, there is still much to learn.
The FCA reviewed a sample of 12 firms across multiple sectors. Through interviews and reviewing firms’ D&I policies, targets and data, they looked at how they were designing and embedding D&I strategies.
We explore their main findings below which they encourage firms to consider when assessing their own D&I practices.
What characteristics are firms focusing on?
Over 80% of the firms in the FCA’s sample had a D&I strategy. These placed the most focus on gender (perhaps unsurprisingly given mandatory reporting obligations and the availability of data).
Ethnicity was another key focus for firms. This follows high profile activism in this area over the last few years, in the wake of which many businesses implemented initiatives to address race representation. However, the lack of available ethnicity data, a challenge that many employers are familiar with, prevented some firms from setting targets and driving change.
Less visible diversity characteristics including social mobility, sexual orientation, disability and neurodiversity received far less attention.
Firms were also generally considering characteristics in isolation rather than looking at the experiences of those belonging to multiple minority groups through an intersectional lens (for example, female ethnic minorities).
What initiatives are firms using?
Common initiatives included:
- Supporting career progression for staff returning to work (e.g. carrying forward performance grades)
- Encouraging parental leave for men as well as women
- Mentoring and sponsorship
- Setting specific business area targets
- Anonymised CVs and diverse shortlists/ interview panels
- Mandatory training
More thought had been given to initiatives to improve diversity through the recruitment process rather than other parts of the employee life cycle, but the FCA was nonetheless pleased to see a lot of willingness to pursue initiatives for change.
They did, however, caution against over reliance on measures like training, network groups and allyship which they said may not tackle ingrained, systemic biases.
Where are firms facing the biggest challenges?
Whilst data showed that the biggest reduction in representation is from junior to mid-level roles, firms tended to focus on improving representation at senior levels. Not only did this suggest that some firms were taking a ‘compliance approach’, the FCA also warned it could create a culture where firms poach diverse senior talent instead of developing their own internal talent pipelines.
The FCA also found that D&I strategies were not consistently based on an understanding of the firm’s unique challenges or tracking of initiatives. As such, there was a risk that actions were not appropriately targeted to the issues, taking up considerable resource without seeing meaningful results.
Collection and use of data is also a key learning point. In the FCA’s words, ‘D&I data is the cornerstone of an effective D&I strategy’, but even those with the best data were not necessarily making full use of it to inform their D&I strategies. And where detailed qualitative information did exist, like data from exit interviews, few firms used it to provide insight into the numbers.
When it came to inclusion, although it was clear that many firms valued and wanted to build inclusive cultures, the FCA found that generally there was much less of a focus on this than on measuring diversity.
Finally, in terms of accountability for D&I progress, many firms included this as part of senior managers’ objectives. However, the extent to which progress might actually affect pay and reward in practice was not clear.
Whilst many firms have some form of D&I strategy and understand the business case for it, the FCA’s observations serve as a useful reminder that more is needed to drive sustainable change.
As firms increasingly recognise that achieving meaningful progress extends beyond gender and ethnicity representation, we are likely to see them broadening their focus to other characteristics like disability and socioeconomic status and looking more closely at how to measure inclusion.
The FCA is due to publish a consultation paper on D&I in financial services this year.