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Risk and Regulation Series: The Risk by a lack of diversity

22 February, 2018Sarah Thwaites

diversity 2A 100 years ago British Women battled and won the electoral vote, and as we commemorate this milestone, equality and diversity issues are still making the headlines.

Scandals

Diversity and inclusion are increasingly on the corporate agenda with research showing that it leads to better decision making and financial performance.  A lack of diversity has contributed to financial scandals through the impact of ‘group think’ and the lack of challenge. Equally firms are missing out on talent and are less able to relate to their customers. 

Diversity and inclusion have an impact on how the industry is perceived by customers, investors, staff, government, and regulators and therefore poses a reputational risk. Government sponsored reports have focused on this subject and HM Treasury’s Women in Finance Charter has turned the spotlight on gender diversity in the financial services sector.  There are initiatives including the 30% Club campaign, aimed at increasing the proportion of women in executive positions in FTSE 100 firms by 30% by 2020.

"Exacerbated Problems"

The risk caused by a lack of diversity in financial services, has been recognised by the Financial Services Authority. In an interview with Financial News in December 2017 CEO, Andrew Bailey said “You can point to the experience of the last 10 to 20 years where problems have been exacerbated by a lack of diversity”.  The Financial Reporting Council, UK Corporate Governance Code (the Code), highlighted the importance of inclusion and diversity at board level. In the “Proposed Revisions to the UK Corporate Governance Code” states “It is, therefore, essential for boards to be made up of competent, high- calibre individuals who, together, offer a broad mix of knowledge, skills, experiences, backgrounds, and personal strengths, including women and individuals from different social and ethnic backgrounds”.  The revised Code also encourages, for the first time, diversity across the workforce and the development of a diverse executive pipeline. 

Gender Pay Gap

The gender pay gap reporting regulations came into effect 6 April 2017, requiring all organisations in Great Britain with over 250 employees to report on their gender pay gap publicly both on their website and on the Government site, by no later than 4th April 2018. Companies will be required to report annually to show trends. The UK government says it will also publish sector-specific league tables, highlighting companies failing to address pay differences between men and women. The latest research has indicated that the gender pay gap in financial services is significantly higher than the UK average. Failure to tackle the gender pay gap will damage the industry’s reputation both internally and externally and could potentially make it more difficult to attract women to the sector in the future.

Gender diversity is currently in the spotlight but going forward the discussion is likely to move to wider diversity and firms will need a strategy to keep pace with this, making the industry more diverse and building an inclusive culture.

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