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Recent consultative exercises that the UK’s Financial Conduct Authority (FCA) and the European Central Bank (ECB) have undertaken show that diversity and inclusion are becoming more of an issue for compliance officers at financial firms in Europe.
In June, the ECB asked interested parties to comment on the revisions that it was proposing to make to its guide to “fit and proper assessments”, while the UK's FCA consulted the public about diversity and inclusion on company boards the following month.
Both had come to similar conclusions in favour of a more diverse and inclusive financial services industry.
“From now on, in addition to assessing the adequacy of collective knowledge, skills and experience when determining whether a bank’s management body as a whole is suited to effectively steer a bank, the ECB will also look closely at the sufficiency of gender diversity of bank boards,” it announced.
Its consultative exercise closed in August and received around 20 responses from banking associations and individual institutions, according to a spokesperson for the eurozone's central bank.
Meanwhile, the FCA is proposing to change its Listing Rules to require companies to tell the public (annually, on a “comply or explain” basis) whether they meet specific board diversity targets. It also wants them to publish data about diversity on their boards and executive teams.
Neither the ECB nor the FCA are consulting the payments industry directly. However, there is an appetite among regulators to impose more corporate governance requirements on payment institutions.
For example, an FCA official recently touted the idea of bringing payments and e-money institutions into the ambit of the Senior Managers & Certification Regime (SM&CR).
"I do think diversity is a real problem, as women are under-represented in fintech. Few women are leading the top 50 companies and at business events there will be an attendance of around 10 percent by women,” said Lisa Gutu, chief operating officer at Salt Edge, the open banking platform.
In fact, a study on the representation of women in fintech in 2017 found that just 30 percent of the workforce is female and only 17 percent hold senior positions.
There is definitely room for improvement and people ought to do something about this at different levels, not least in education, considering that it can be hard to hire women for particular positions, Gutu continued.
According to the European Banking Authority (EBA), only 8 percent of chief executives at European credit and investment institutions are women and women hold only around one-fifth of the positions in the management bodies of Europe’s largest banks.
Data also shows that women on the boards of most institutions also continue to be paid less than men. Even when the EU requires banks to have diversity policies, less than two-thirds of them do.
National regulators in the EU have also intervened.
Jekaterina Govina, financial services director at the Bank of Lithuania, told VIXIO that her organisation has asked the EBA to take steps to make the composition of corporate management bodies more “balanced”.
“The situation in the Lithuanian financial sector on management level is still far from desirable in terms of gender equality,” she noted, although she also said that improvements had occurred.
“Shareholders understand the importance and benefits of diverse teams and we see efforts of the majority of institutions to reach the balance. For example, the two biggest banks operating in Lithuania recently appointed females as chief executive officers,” she pointed out.
Meanwhile, a spokesperson for the Central Bank of Ireland (CBI) told VIXIO that diversity and inclusion in the financial services industry, combined with changes in behaviour and culture, are crucially important for monetary and financial stability and for the ECB’s crusade to make the financial system operate in the best interests of consumers and the wider economy.
Since 2017, the CBI has used its Pre-Approval Controlled Function (PCF) Demographics Analysis Reports to gather data about gender diversity in the upper echelons of regulated financial firms.
“The results are stark in that female applicants, for pre-approval control functions, made up just 20 percent of all applications for senior roles from 2012 to 2020,” the spokesperson said.
The CBI also stated that assessments taken so far indicate that firms were at the lower end of the maturity scale when it came to having a cohesive diversity and inclusion strategy, arguing that diversity of personnel, in and of itself, will not automatically translate into the many benefits associated with the diversity of thought.
“Diversity must be supported by an inclusive culture, which facilitates and supports individuals to contribute, irrespective of their differences, so that diverse views are shared,” the spokesperson said.
Diversity and inclusion changes should be driven by regulation and the market, said Gutu.
“For corporates, it is hard to change policies so enforcement can help them get to specific points.
"Start-ups are a lot more flexible with their work, such as by introducing specific policies for working mums. In start-ups, the focus is on key performance indicators (KPIs), not working 9-5, which is a perspective that corporates are lacking. Start-ups are helping close this gap and, hopefully, this will continue in the future."
As for the future, the CBI has promised to continue to require the firms that it regulates to improve diversity at senior levels, to review their efforts and to publish research and information to encourage diversity and inclusion at regulated firms.
“No two firms will share precisely the same culture as culture is by its nature internal and a matter for each individual firm in the first instance. Each firm is responsible for their own culture and embedding it," the spokesperson said, pointing out that this will ultimately shape and influence the CBI’s approach to every firm’s “diversity and inclusion strategy”.
As for the Bank of Lithuania, Govina noted that although auditing is not yet necessary for matters of diversity and inclusion, the regulator is stressing the importance of gender diversity during discussions with the shareholders of financial institutions.
“We believe that the understanding of the benefits of gender diversity must evolve naturally through raising awareness and information,” she said.
“Personally, I support gender equality in all respects and encourage my female colleagues to take the lead on various initiatives,” Govina continued.
“Still, there is room for improvement, but we are hopeful that financial market participants will follow positive examples.”
