In a discussion paper, the regulators have set out policy options including, among others, the use of targets for representation, measures to make senior leaders directly accountable for diversity and inclusion in their firms, linking remuneration to diversity and inclusion metrics and the regulators’ approach to considering diversity and inclusion in non-financial misconduct.

The discussion paper also focuses on the importance of data and disclosure in order to enable firms, regulators and other stakeholders to monitor progress.

The regulators believe that increased diversity and inclusion will advance their statutory objectives by resulting in improved governance, decision-making and risk management within firms, a more innovative industry, and products and services better suited to the diverse needs of consumers.

Sam Woods, deputy governor for Prudential Regulation and CEO of the Prudential Regulation Authority (PRA), said: “While some progress has been made to improve diversity and inclusion in parts of the financial services sector over the last decade, the discussion is still in its early stages, and more needs to be done to speed up progress. Regulators and industry need to work together to increase diversity at senior levels and ensure that the UK’s financial services firms are best equipped to serve the economy. 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.”

Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England, added: “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 paper we have published invites a discussion on our thinking on how the industry, including Financial Market Infrastructure firms (FMIs), can develop its approach to diversity and inclusion, in line with our objective to ensure sound, robust financial markets.”

Nikhil Rathi, chief executive of the FCA, commented: “We are concerned that lack of diversity and inclusion within firms can weaken the quality of decision-making. We look forward to an open discussion on how we should use our powers to further diversity and inclusion within financial services, to the mutual benefit of firms and their customers.”

To assess progress the authorities are proposing collecting data from firms about their workforce. Prior to this, there will be a one-off, pilot survey later this year which will help to develop the proposals set out in the discussion paper and test how firms’ can provide data with a view to considering 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.

The discussion paper is open until 30 September 2021. The feedback and data received will be used to develop detailed proposals, with a joint consultation planned for Q1 2022.