FCA may block appointments to improve City diversity
The incoming head of the financial watchdog has warned City firms that director appointments could be blocked if companies fail to hire more women and ethnic minority candidates in senior roles.
The Financial Conduct Authority’s newly appointed chief executive, Nikhil Rathi, told MPs on Wednesday that rejecting appointments is one of the tools he would consider if banks, insurers and other City firms continued to drag their feet on diversity.
Rathi, who will be the FCA’s first boss from a black, Asian or minority ethnic (BAME) background when he takes over this autumn, told the Treasury select committee: “I would have an expectation over the coming years to see boards and senior leadership of native, national institutions working hard on these issues to deliver diversity and change culture.
“And if we are are seeing that progress is not happening, then at some point it becomes a supervisory matter and it may even become a matter that we would need to deal with in how we decide or prevent appointments or not,” he said.
Related: 'There are lots of BAME candidates': UK boardrooms fail to embrace diversity
This is part of wider efforts to tackle a lack of diversity across British business.
Figures released in February by the Parker review – a government-backed report into ethnic diversity in boardrooms of stock market-listed companies – showed that people of colour held only 178, or 6.8%, of 2,625 director positions across the FTSE 350 index.
The prominence of the Black Lives Matter movement in the UK in recent months has also increased focus on the challenges facing black communities in particular. While black people make up about 3.3% of the total population of England and Wales, they only held 1.5% of the 3.7m leadership positions across the UK’s wider public and private sectors in 2019, according to Business in the Community, a charity that campaigns for responsible behaviour in the business world.
Meanwhile, City firms are still struggling to reach self-imposed gender diversity targets. The Women in Finance Charter’s annual report released in June showed nearly a fifth of City firms had fallen behind on targets and that women made up just 32% of senior roles in 2019, having increased just one percentage point per year since 2017.
Charter signatories are also expected to link executive pay to diversity targets. However, the report said that of the 187 signatories included in the report, only 160 had followed through.
Rathi, who is joining the watchdog from a senior role at the London Stock Exchange, admitted that the FCA had to address diversity within its own ranks as well. He told MPs that his predecessor Andrew Bailey, now Bank of England governor, had been making “considerable progress” on both gender and ethnic diversity, but admitted that there was still work to be done.
BAME staff at the FCA earn 28.7% less than their white colleagues, on a median basis, while the median gender pay gap stands at 20.6%. The regulator is trying to boost the proportion of women in senior roles to 50% by 2025, while increasing the proportion of BAME staff in leadership positions to 13% over the same period.
BAME staff make up 7% of the FCA’s senior roles, while women make up 40%.
Rathi said he would personally lead efforts to increase diversity within the FCA’s own ranks and was open to using measures like non-names shortlists, where recruiters remove names from CVs to help reduce bias.
“It is in the interest of the whole industry to consider its leadership, to consider whether it is properly reflecting the society it serves,” Rathi said.
