Financial Conduct Authority (FCA) chief Nikhil Rathi has warned that the regulator will act when it doesn’t see improvements in firms’ diversity, while working to meet the gender equality targets that it has also missed.
Speaking at the Women in Finance Charter Annual Review Launch, Rathi (pictured) said that the Women in Finance Charter is making a difference with 62 per cent of signatories reporting an improvement in female representation in senior management.
He said the FCA’s own target was to have 45 per cent of its senior leadership roles filled by women by 2020, and half by 2025. However, Rathi revealed that the regulator had missed its 2020 target by five per cent and still has work to do.
He said that the City regulator has introduced five conduct questions to help focus the minds of senior managers on conduct risk and would like to add a sixth for all firms on diversity.
This would be ‘is your management team diverse enough to provide adequate challenge and do you create the right environment in which people of all backgrounds can speak up?’
Rathi said if firms do not take action on this issue, the FCA will look to use its supervisory tools on senior managers.
He said that improving diversity and inclusion strengthens customer outcomes as he would question if any firm can adequately respond to the needs of these consumers if they do not have the diversity of background and experience required to overcome biases and blind spots.
“In the years ahead, if we don’t see improvements in diversity at senior levels and better answers, we will also consider how to best use our powers,” said Rathi.
“There are supervisory tools we can draw on. For example, I want to consider whether the diversity of management teams – and the inclusivity of the management culture they create – could be part of our consideration of senior manager applications.”
When building his new executive team, Rathi has been focused on finding the best candidates which has meant ensuring diverse shortlists and last month appointed four women to the FCA’s executive committee.
“It’s important for us to lead by example, and our new appointments will mean 10 of our 19 board or executive committee members will be women,” said Rathi.
“As an employer, we are determined to improve our own diversity and to work on our culture to ensure it is inclusive.
“As a regulator, we want the same from the firms we oversee and in the markets we regulate. Not because it is a social good – although, frankly, that should be enough.
“We care because diversity reduces conduct risk and those firms that fail to reflect society run the risk of poorly serving diverse communities. And, at that point, diversity and inclusion become regulatory issues.”