Approaches to D&I in financial services
The FCA recently published its findings on diversity and inclusion practices in regulated firms. Its conclusions echoed similar sentiments to other diversity analysis – whilst progress has been made, we still have a long way to go. They also provide a reminder that building diverse and inclusive cultures extends beyond training and external targets. It is important to create an environment where staff feel safe speaking up and different perspectives are welcomed.
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?
Firms 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. Some focused almost exclusively on this in a drive to meet external targets and expectations. 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 is a risk that actions are 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. Firms with the best staff declaration rates had worked hard to build trust and understanding, which is often a hurdle in gathering sensitive employee diversity information. Whilst there was considerable variation in data quality, 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.
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.
Although firms had the most developed strategies in the field of gender, and had obtained the strongest data sets in this area, the FCA reiterated that large gender pay gaps persist in the industry. This position underlines the importance of capitalising on data to identify where action is most needed.
Outside of gender representation, a major barrier is of course the availability of accurate data. It is understandable that for years many firms have focused on the most visible diversity characteristics, but to create a truly diverse and inclusive culture, employers are starting to recognise that they need to extend their efforts beyond this. Employers should consider how to build trust so that staff are clear on how their data is being used and feel safe disclosing it. Use of data collected from focus groups, employee resource groups and exit interviews can also be maximised to get to the core of why there are issues in representation.
The FCA will publish a consultation paper on D&I in financial services in 2023.