Why does the FCA care about diversity and inclusion?

Speech by Georgina Philippou, Senior Adviser to the FCA on the Public Sector Equality Duty, given at the Ethnic Diversity in the City and Corporate UK Summit.

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Speaker: Georgina Philippou, Senior Adviser to the FCA on the Public Sector Equality Duty
Event: The Ethnic Diversity in the City and Corporate UK Summit
Delivered: 21 January 2021
Note: this is the speech as drafted and may differ from the delivered version


  • Financial services generally are not diverse and that is not a good thing for anyone. But it is also important to remember that diversity is one thing and inclusion is another; without an inclusive culture, the value of diversity, when achieved, will not be realised.
  • As the FCA, we want to see a healthy financial services industry; we want to mainstream diversity and inclusion into all of our regulatory processes.
  • The responsibility for creating and maintaining more ethnically diverse and inclusive cultures in the financial service industry sits with us all.

I am here today to talk to you about why the FCA cares about diversity and inclusion, and I suppose the question really should be why on earth wouldn’t we? So the question perhaps isn’t so much why we care but how we care.

Let me count the ways.

We care as an employer, as a regulator and as a public body.

I suspect that we are preaching to the converted today and everyone here accepts that we would all benefit from a more diverse and inclusive financial services industry. Perhaps we would also accept that the FCA has an important responsibility both to lead by example, and to use our regulatory powers, hard and soft, to advance the agenda.

As an employer, we want to be as diverse and inclusive as possible, reflecting the communities in which we are placed and the consumers whom we protect.

As a regulator, we want to move the dial on diversity and inclusion in the financial services sector.

We all know that diversity has many benefits. People with different life experiences can bring new thinking and their experiences can inspire new approaches to problem solving and decision making

As a public body, we are subject to the requirements of the Public Sector Equality Duty, which means we must look for ways to eliminate discrimination, advance equality of opportunity and foster good relations between people who share protected characteristics and those who do not.

At the last census, the most ethnically diverse region in England and Wales was London, where just over 40% of residents identified as BAME. In fact, Newham, where the FCA’s London office is located, was the local authority where people from the White ethnic group made up the lowest percentage of the population, at 29%. I highlight London because that is, for now at least, where most financial services firms are based, and because we are talking about the City today.

We all know that diversity has many benefits. People with different life experiences can bring new thinking and their experiences can inspire new approaches to problem solving and decision making. This can help firms to understand and meet the needs of all consumers, including those from diverse sections of society, ensuring that parts of the population are not unnecessarily or unfairly excluded from the advantages of positive engagement with financial services.

The McKinsey ‘Diversity Wins’ Report, published in May 2020, notes that ‘the business case for diversity and inclusion is stronger than ever’.

  • McKinsey found that the most ethnically diverse companies are 35% more likely to outperform the least diverse.
  • And in the 2017 McGregor-Smith Review, the potential benefit to the UK economy from full representation of BME individuals across the labour market, is estimated to be £24 billion a year.
  • In their 2019 annual report, Leadership 10,000, Green Park found that only 1.6% of the Top 100 roles in Finance & Banking FTSE 100 companies were held by Black colleagues.
  • In their 2018 report, Paying attention, the research firm Randstad revealed that members of the BAME community currently hold fewer than 1 in 10 management jobs in UK financial services.
  • Remember that census figure – 40% of the London population is BAME – and pause to think.

Now, business cases are all too easy for clever people to unpick, what is more difficult to unpick is the fact that the city and financial services generally are not diverse and inclusive and that cannot be a good thing for anyone. You might dismiss a business case but you cannot dismiss a moral imperative to do the right thing.

As an employer

As an employer, we have worked hard in recent years to make sure the FCA is more ethnically representative of the society we serve and that everyone has fair opportunities to work, develop and progress. We recognise that diversity is one thing and inclusion is another.

The stats show that 30% of our associate colleagues are BAME so that might not look too bad.

But do those colleagues thrive and prosper and get good opportunities to show what they are capable of and do they progress through the organisation?

The stats show that only 10% of our senior leadership team are BAME and I am sure we are not alone in that discrepancy between junior and senior levels.

Things are changing but not at the pace we would like.

Two things have happened in the last year to give us all a bit of a kick.

1. The first is the pandemic

Which, as we all know, is affecting different parts of society in different ways, and we  need to recognise and address that. An example of the work we are doing – we are using our Financial Lives Survey data and our Covid-19 October panel survey data to analyse and share what we know about product usage and the impact of the pandemic on different groups of consumers with protected characteristics, with a focus on BAME adults, disability and gender.

2. The second is recent events surrounding the Black Lives Matter movement

We want to make sure we are taking bolder action and making firmer commitments to change as an organisation

Which have highlighted the impact of systemic racism and discrimination in society, and emphasised the challenges we face as an organisation, and as an industry, in relation to ethnicity and race. These events have elevated the voices of our people, they have paved the way for uncomfortable conversations, and they have helped to bring home that what is bad for ethnic diversity is bad for us all. It is incumbent on all of us to reflect on our own behaviours and commit to change.

Through the publication of our Ethnicity Action Plan, we seek to be transparent about the challenges we face, we want to make sure we are taking bolder action and making firmer commitments to change as an organisation. We hope that by doing this, while recognising that we are not perfect, we can set an example for the firms that we regulate and encourage conversation and action.

A big part of this is about using our data to better understand the challenges we face, and being transparent with that data, so that we can hold ourselves to account and monitor own our progress or lack of it.

In 2019, despite no mandatory requirement to do so, we published details of our ethnicity pay gap. But we recognised that the grouping of Black, Asian and Minority Ethnic (BAME) people masks some important underlying differences between ethnicities, and so this year, we published a breakdown of our ethnicity pay gap as well as our intersectional ethnicity-gender pay gap.

And we are continuing to look at where else we can break down data to build a richer picture of our people, because we cannot think about ethnic diversity without considering its intersectionality with other protected characteristics.   

Our (mean) ethnicity pay gap is 27%. While this is not an equal pay for equal work issue it is not something we are proud of because it reflects some fundamental structural imbalances in our organisation, with too many BAME colleagues in junior roles or at the junior end of roles.  Again, I am sharing this with you in the hope that it will encourage you to be as open as possible in our subsequent conversations.

We are also transparent about our targets and why they matter. Our biggest challenge remains addressing the representation of women and BAME people at senior levels. We have hit our BAME representation interim target of 8% ahead of time, but we have missed our gender representation interim target of 45%. These targets are so important, because they allow us to own and be open about our uncomfortable truths, and drive accountability for change.

As a regulator

Looking beyond our own four walls at our role as a regulator now.

The Banking Standards Board asks respondents about their ethnicity as part of their annual survey of culture in banking; their findings suggest that:

  • Black and Asian respondents are less likely to feel comfortable challenging their manager and;
  • are more likely to say they find it difficult to progress in their organisation without flexing their ethical standards.

Safe cultures play a key role in supporting inclusion, encouraging employees to bring their ‘whole selves’ to work. Without an inclusive culture, the value of diversity will not be realised. Without inclusion, diversity will not lead to better decision making. Without inclusion, we will not be able to meet the needs of all consumers.

When employees do speak out, the response of an organisation is key to determining whether they or their colleagues will feel safe to do so again

We want to see a healthy financial services industry with cultures that reduce the potential for harm. How a firm prioritises and embeds diversity and inclusion are clear indicators of its culture. And each firm’s culture is different. There is no one size fits all model and we cannot prescribe what any firm’s culture should be, but it is the responsibility of us all, of everyone in the financial services industry, to create and maintain cultures which embody diversity and inclusion.

It is easy to become overwhelmed by ‘culture’, it seems far too nebulous a concept to get your arms around. So, it helps to break it down into more manageable components. We use 4 key drivers, which we consider to be common elements of a healthy culture:

  1. A meaningful purpose,
  2. An appropriate governance structure to facilitate good decision making,
  3. Effective leadership including the tone from the top, and,
  4. People policies that incentivise behaviours which create an inclusive environment.

Crucial to harnessing an inclusive culture, is engendering psychological safety in the workplace – creating an environment where employees feel safe to share ideas and speak up. Leaders must acknowledge their status and actively recognise how  their behaviour and actions can influence and support an environment of psychological safety and collaboration.

Not only do people need to be able to ‘speak up’, leaders need to ‘listen up’ when they do. When employees do speak out, the response of an organisation is key to determining whether they or their colleagues will feel safe to do so again. Leaders have a very important part to play – one small mis-step from a senior person can undermine a brilliant strategy and years of action. Being a strong leader means creating an environment where employees feel listened to. And a culture that encourages both speaking and listening up.

As a public body

And what about us as a public body?

There are opportunities for us to fulfil our Public Sector Equality Duty in all of our interactions with financial services firms:

  • from how we break down diversity barriers to entry into the industry,
  • to how we look at the composition of Boards and Executives, including in SMR interviews,
  • how we ensure that we are considering the impact of our policy and competition work on different consumer groups
  • and the conversations we have with firms in our supervisory and enforcement work

We take a real interest in what firms are doing to promote diversity and inclusion, and our PSED work will help to drive this forward – it’s all about setting clear expectations with firms and getting the data we need to hold them to account on progress, and then of course following through in our regular engagements with firms.

Ultimately, we want to mainstream diversity and inclusion into all of our regulatory processes – from the gateway, in policy making, through to Supervision and Enforcement and everything else we do.

A good practical example of this is the work we are doing to match Understanding Society household panel data to CRA data, which will help us to investigate consumer patterns in credit use and behaviour by ethnicity.

In conclusion, we can make real progress here because we all want to do the right thing, and I look forward to seeing regulators and industry working together to create more ethnically diverse and inclusive cultures in the financial services industry.