Diversity and inclusion

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Issues around diversity and inclusion have featured prominently in recent pronouncements from the FCA. The regulator has become increasingly concerned that financial services firms are not exactly leading the field on D&I – and wants to move fast to put that right.

As its full name strongly hints, the FCA sees conduct as key to any effective supervision of the financial services sector, and sees D&I – in the words of a recent speech by its CEO Nikhil Rathi – as ‘a telling indicator of culture.’

Beyond seeing D&I as a bellwether for broader culture failings, the FCA believes improved practice on diversity and inclusion helps mitigate culture risk within a firm. It has noted, for example, that a diverse and inclusive company culture, within which all employees feel accepted and able to speak freely, can help protect firms against everything from sexual harassment to bribery and corruption.

Failure to engage seriously with D&I at board level can leave untrained managers unaware of what they are doing wrong.

It is already the case that senior managers can be held personally liable for non-financial misconduct or for failures on D&I that lead to harm to customers or markets. But we can expect to hear plenty more from the regulator on this topic in the near future.

It is widely expected that the FCA’s 5 Conduct Questions (5CQ) will be expanded to become 6CQ, with D&I as CQ6. We have also been told that the FCA and PRA are working jointly on a new approach to D&I right across financial services. Given all this, it is unlikely to be long before we start seeing examples being made around poor D&I performance.

There’s certainly more than a hint of complacency on D&I right now within financial services. One recent survey highlighted a significant discrepancy between how diverse and inclusive board-level financial services employees think their organisations are and the presumably better informed assessments volunteered by their HR people.

Experience suggests there’s still an element of senior staff seeing D&I as something slightly nebulous and undefined – something ‘nice to have’ rather than a ‘commercial imperative’, as the regulator recently termed it. Good intentions are clearly not enough in the current climate.

Failure to engage seriously with Diversity and Inclusion at board level can leave untrained managers unaware of what they are doing wrong. This in turn leaves leaders and managers open to unlimited fines and their firms to regulatory action and/or the significant legal costs that come with defending discrimination claims and paying out settlements or compensation.

There’s a growing recognition that failing to create and sustain a corporate culture in which all employees – regardless of their gender, ethnicity, sexual identity and orientation, physical and mental abilities, or other personal characteristics – feel valued and fairly treated can harm a firm in a wide variety of ways.

It can adversely affect employees’ motivation, performance, or even loyalty. It can prevent them from fulfilling their potential – and their employers and managers from recognising what they are capable of – and how their diverse experiences and viewpoints could help their firm address the needs of an increasingly diverse customer universe.

The FCA has explicitly flagged its concerns over a lack of diversity, from the top down, impairing firms’ ability to understand the communities they serve – or should be serving. Ultimately, Diversity and Inclusion failings can badly hurt a firm’s reputation – as we have already seen with issues such as gender pay gaps.

So, what should senior people within financial services firms be doing to get up to speed with Diversity and Inclusion? Firstly, ensuring Diversity and Inclusion is high up the corporate agenda and keeping it there. Secondly, leading by example and showing everyone within the business that they take these issues seriously.

There’s no harm anticipating Diversity and Inclusion’s future inclusion as one of the FCA’s 6CQs and running your current provisions through that same thought process. One of the things this will likely highlight is the need to undertake some training – particularly for managers, but potentially for each and every employee.

That training should help your people appreciate the importance of seeing things from others’ point of view and recognising their own potential biases and blindspots – and where they might unconsciously be contributing to poor Diversity and Inclusion outcomes.

It would help them identify, flag-up or tackle unfair treatment, discrimination, bullying and harassment, and how to accept and value a full range of perspectives, abilities and orientations. It can also cover the basics of what diversity is, what inclusion is, and why they both matter.

That’s something I’ve skimmed over here – largely for lack of space. But if you’re still in any doubt – or you think anyone else within your business might be – now is very definitely the time to act!

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Nikki Bennett is Director at Searchlight Insurance Training. Searchlight works with more than 50 specialist trainers with hands-on insurance experience to deliver more than 1,000 training days per year. We offer an unmatched range of face-to-face and e-learning resources across the full spectrum of technical insurance skills and business skills training.

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