Diversity strategies across the financial services sector are not inclusive enough and failing to build diverse talent pipelines leading to unsustainable practices including poaching of senior mangement, the Financial Conduct Authority (FCA) revealed.
It found some firms are “systematically” failing to track progress and purely focused on ensuring they comply with targets rather than understanding the need for cultural change.
The FCA scolded the industry for its implementation of diversity and inclusivity initiatives as the regulator published analysis of its qualitative and quantitative research.
“Many firms’ strategies were generic and did not take a holistic view. They lacked both a clear articulation of purpose and actions oriented to achieving their goals,” the FCA said.
“Very few firms seemed to have understood diversity and inclusion as a fundamental culture issue. Generally, we found much less understanding of and focus on building inclusive cultures than on actions to measure diversity and address specific issues.
“None of the retail firms that we spoke to had undertaken substantial work on the diverse needs of their consumer base, though a few had recognised the need for this,” it added.
However there were some positive comments from the FCA as it found almost all the people it spoke to were “committed and passionate” about making progress and there were a “number of thoughtful initiatives” underway.
Unsustainable approach promoting poor practices
Among the key findings was that firms were most focused on addressing gender representation, with ethnicity starting to receive more attention, but other demographic characteristics received much less attention.
It noted that despite the largest drop off in representation of gender and ethnicity occuring between junior and middle management grades, firms tended to focus most on improving representation at senior leadership level.
Consequently, the regulator concluded that such focus in isolation risked creating a culture where firms attempted to poach diverse senior talent rather than develop their own pipelines.
It added this was not a sustainable approach and was unlikely to bring meaningful, long-lasting change.
The regulator also found firms’ diversity and inclusion strategies were not consistently based on a clear diagnosis of their specific circumstances and challenges.
This meant actions and initiatives may not be appropriately focused.
Firms were also found to be failing in systematically tracking the effectiveness of these measures and initiatives leading to a lack of understanding about what really worked.
Without a strategy informed by a diagnostic process and better tracking of initiatives, some firms risked expending considerable resource without seeing meaningful results, the regulator added.
Poor data quality
According to the regulator’s findings, there is wide variation in the quality of data firms are collecting.
Those with better diversity data had a better understanding of their position and were better placed to decide which actions to take. This variation was largely the result of differing levels of success with staff declaration rates
Firms with the best declaration rates had worked hard to achieve this, with focused initiatives to build trust and understanding, and optimising touch points with staff.
Poor data quality also affected firms’ abilities to carry out intersectional analysis to understand the experiences of different groups, the research found.
This meant firms were not able to design or implement targeted interventions to address these issues leading to a risk that patterns or trends could be missed.
According to the FCA’s pilot data survey, while 89% of large firms and 54% of small firms collect data on gender, only 61% of large firms and 12% of small firms collect data on sexual orientation and just 21% of large firms and 4% of small firms do so for neurodiversity.
Accountability unclear
While most firms said senior managers were accountable and that diversity and inclusion goals could affect pay and bonuses, it was much less clear in many cases how this worked in practice, the FCA said.
The FCA’s pilot data revealed that when it comes to the number of firms with targets for underrepresented groups, 41% of large firms and 5% small firms had targets for all employees, while 71% of large firms and 8% had targets for senior management and 47% of large firms and 7% of small firms had set targets for board level representation.
While the specific initiatives included many the FCA felt were likely to have a positive effect, the regulator also warned of an overreliance in some firms on measures such as training, network groups and allyship, which although important, will not alone bring the kind of systemic change needed.
International strategies not UK tailored
Firms that sit within international groups were found to have generally adopted a group-wide international strategy, without tailoring it to the circumstances of the UK organisation or the characteristics of the UK.
These firms typically had less ambitious and well-defined strategies and were often reliant on global rather than UK-specific data, the regulator added.
While most firms were found to have approached the work positively, the regulator found that there were differing levels of commitment from firms, both to diversity and inclusion in general and specifically in their participation in the research.
Some firms were reluctant to make senior business leaders available as requested. However, where they did, the FCA revealed it spoke to people with a strong personal commitment to diversity and inclusion.
Although it was not clear to what extent the enthusiasm of the people researchers spoke to is more widely reflected across their organisations and in a few cases, respondents acknowledged that some parts of their organisations were harder to reach on this issue.
Driven by external targets
While by and large, firms were open and candid about the challenges they are facing and focused on achieving meaningful progress, the regulator reported several instances where firms focused almost exclusively on gender representation at senior levels because there are external targets and expectations for it.
The regulator warned this suggested a compliance approach, rather than a genuine commitment to diversity and inclusion, was driving some strategies.
This was supported by the FCA’s pilot data which showed three quarters of large firms and 11% of small firms had set gender targets and 40% of large firms and 3.7% of small firms for race ethnicity.
Just 4% of large firms and 0.6% of small firms and 1% of large firms and 0.6% of small firms had set targets for sexual orientation and socio economic background respectively.
Methodology
The regulator chose a sample of 12 generally larger firms across multiple financial services sectors. Each firm was asked for some basic information, including their diversity and inclusion policy and strategy, if they had them, their targets or goals and any data that they used.
Researchers also requested a 90-minute structured interview with each firm and asked all firms to make a senior leader available for this interview, in addition to any specialists that they wanted to include.
In 2021 the FCA’s pilot data survey received 158 responses from large firms and 514 from small firms.