Speaker: Georgina Philippou, Senior Adviser to the FCA on the Public Sector Equality Duty Event: Building Ethnic Diversity and Inclusion in Investment Management - Report Launch. Delivered: 16 March 2021 Note: This is the speech as drafted and may differ from the delivered version I’m very pleased to be here for the virtual launch of the Investment Association and Eversheds report: Building ethnic diversity and inclusion in investment management. There’s no dinner party if we all wait for others to come to the table first, so thank you to the Investment Association for bringing us all to the table with this report: a great addition to the menu of reports by the Association which do a good job of sharing some sobering data and describing what good looks like.
It is unfortunately clear that there is plenty of work yet to do to secure diversity and inclusion in investment management, particularly when it comes to ethnic diversity. I don’t know if it’s rude dinner party behaviour to quote your host’s data back at them but: Think of all that untapped talent which makes for a very strong business case for ethnic diversity in the investment industry: The ability to share best practice and exchange ideas and experience is a crucial part of making progress on diversity and inclusion (D&I) at an individual firm level and at a collective sector level. But when I say collective, I don’t mean uniform. There would be an unfortunate irony in failing to recognise the range of financial services firms across and within sectors, and pushing a one size fits all approach to D&I. But we all have to start somewhere, and sharing ideas is an excellent way to do that. We, as a regulator, have a role to play in all of this and that role starts close to home, in what we do as an employer, where the challenges we face are similar to the challenges any firm faces. As an employer, we try to lead by example. This doesn’t mean that we hold ourselves up as having the answers to all the questions, far from it. But if we talk about the importance of data, we have to collect data. When we talk about the benefits of targets, we have to have targets ourselves. When we talk about the value of transparency, we have to be transparent ourselves. When we talk about the importance of having difficult conversations, we have to be up for having those difficult conversations about ourselves. For us as an employer, this means driving action in 3 priority areas: gender, ethnicity and social mobility - and making sure that we move from the ‘D’ of Diversity, to the ‘I’ of Inclusion. That is, making sure that not only do we bring diverse colleagues in at junior levels, but those colleagues thrive and prosper and get good opportunities to show what they are capable of and to progress through the organisation. And we readily admit that we have some challenges to overcome. Statistics show that 30% of our associate colleagues are Black, Asian and Minority Ethnic (BAME), however only 10% of our senior leadership team are BAME. While this beats our 8% target for 2020, there is still an uncomfortable discrepancy between junior and senior levels. This is reflected in our (mean) ethnicity pay gap which is 27%. While this is not an equal pay for equal work issue it is not something we are proud of. To drive transparency around this we have published our Ethnicity Action Plan. This goes hand in hand with using data and setting stretching targets for ourselves. We are using data to better understand the challenges we face and to hold ourselves to account and monitor own our progress or lack of it. 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. In 2019, despite no mandatory requirement to do so, we published details of our ethnicity pay gap. This year, we broke that down further to recognise that the grouping of BAME people masks some important underlying differences between ethnicities. We also published our intersectional ethnicity-gender pay gap. One of the joys and challenges of working at the FCA is that you get to wear a lot of hats – at least metaphorically. We are an employer, but of course we are also a regulator and a public body which delivers public value. So we have to look at D&I in financial services through these lenses too. As a regulator, we talk a lot about culture. We’ve carried out substantial work around culture in financial services firms over the last few years. Our starting point is that we want financial services firms to have healthy cultures that reduce the potential for harm to consumers and markets. We fully recognise that our 60,000 firm population is very broad culturally, but there are some common elements. Healthy cultures are purposeful and safe and they support environments that are diverse and inclusive. Safe cultures in turn play a key role in supporting inclusion by enabling employees to bring their whole selves to work. In practice, this means creating an environment where employees feel safe to share ideas and speak up. A key part of this is making sure leaders and the organisation listen up. Leaders must acknowledge their status and actively recognise how their behaviour and actions can influence and support an environment of safety and collaboration. 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. Without this safety - without an inclusive culture - the value of diversity will be lost. Firms cannot create true cognitive diversity without inclusion. As I have said, when it comes to culture and diversity and inclusion, there is no one size fits all, and it would be inappropriate for the FCA to mandate particular cultures. However, we do expect firms to be able to articulate their purpose, to talk about how their governance structures drive good decision making, to set an appropriate tone from the top, and to be able to show that their people policies are effective in driving diversity and inclusion. And I might as well come clean and say there is no rule in our Handbook that says regulated firms have to be diverse or even have an internal or external diversity policy. But that doesn’t mean we are silent or powerless. D&I is relevant to so much of what we do – it is relevant not just to culture, people and leadership; it is relevant to integrity, to treating customers fairly, to pricing structures, to marketing and advertising, to environmental, social and governance (ESG) strategies and so on. And we have a range of tools at our disposal, from formal to informal and in particular, we have a unique power to influence and convene – to get people round that dinner party table. As a public body delivering public value, we are subject to the Public Sector Equality Duty, which means that we must encourage diversity and inclusion in carrying out all of our functions. What this means in practice is that there are opportunities for us to consider our Public Sector Equality Duty in all of our interactions with financial services firms: Whenever we make new rules, we carry out an equality impact assessment (EIA) as part of our process to ensure groups with protected characteristics are not disadvantaged by our policies and that we have fully considered how we can make policy for a diverse population. Getting this right is an important part of the policy making process and it cannot be a tick box or an afterthought – it has to be an integral part of the process, and, to bring us right back to where I started, with us an employer, a diverse employee base is an asset in making this happen. A good example of this, is our work on overdrafts. This was not a straightforward piece of policy, it involved balanced and careful judgements. We listened to consumers through extensive consumer research. We collected extensive data to help us determine who would be impacted by our work and how and used that to make judgments. We wanted a solution that would enable firms to continue to offer different overdraft products, where this is in consumers’ interests, while competing meaningfully on price, to make sure no one had their access removed, so we talked to firms too. When you make an intervention like this, there is a risk that not everybody is going to benefit. In this case, our specific concerns were for some of the most vulnerable and low-income customers, who were paying very high fees and charges through expensive unarranged overdrafts. A more diverse and inclusive workforce allows us to take a more holistic approach like this and not just in our policy work. And of course, we too have to create a culture of safety so that we listen to voices from different backgrounds as we go about our day to day work of regulation. So perhaps what I am saying is that getting D&I right is a virtuous chain of events: when we get it right as an employer, it helps us to get regulation of firms right – whether that’s as a supervisor or as a policy maker. That directly impacts the firms we regulate, who - if they are diverse themselves - are more likely to design products and services in an inclusive way and reach a diverse customer base. What you might call a win win.
Highlights
The FCA as an employer
How we regulate firms - culture
Our responsibilities as a public body
FTSE Mondo Visione Exchanges Index:
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From Regulator To Firm To Consumer: A Virtuous Chain Of Events - Speech By Georgina Philippou, Senior Adviser To The FCA On The Public Sector Equality Duty, Delivered At The Building Ethnic Diversity And Inclusion In Investment Management - Report Launch
Date 18/03/2021
