The FCA has published a speech by Christopher Woolard, Executive Director of Strategy and Competition, in which he discusses the FCA’s active involvement in addressing culture and diversity issues both internally and in the financial services industry.
Mr Woolard starts his speech by referencing the Asch conformity experiments, psychology experiments in 1950swhich established how social pressure from a majority group, or false consensus can affect a person’s decision making. That is: the power of conformity can make it difficult to recognise or speak out about something wrong or unethical, feeding the danger of not questioning the status quo in an organisation. However, Mr Woolard contends that “cultivating a diverse and vocal workforce is not just a question of mitigating the risk of groupthink – it is also potentially a competitive advantage to organisations”. He goes on to define diversity as a commercial imperative to help organisations make better decisions and prosper. Contenting that what is really needed is a variety of life experience: race, age, social background, sexual orientation, education, etc. in order to better serve consumers of financial services.
According to Mr Woolard, diversity is an FCA supervisory priority: to serve and represent consumers, their full experience needs to be understood. “It should be clear by now that the FCA’s interest in diversity is not merely a matter of social justice, but a core part of how we assess culture in a firm.“ The way the FCA defines culture is very simple: the typical behaviours that characterise a firm.
An open culture makes it easier for risks to be flagged and decision-making processes to be enhanced; the opposite is also true, with corporate culture based on fear making it easier for an unethical behaviour to get a strong position.
The link between culture, tone from the top is well accepted when it comes to combatting market abuse and financial crime. However, the FCA appears to be prepared to expand its considerations to “non-financial” misconduct and this could result in an individual not being considered fit and proper for the role they have within an organisation. According to Mr Woolard, “The way firms handle non-financial misconduct, including allegations of sexual misconduct, is potentially relevant to [the FCA’s] assessment of that firm, in the same way that their handling of insider dealing, market manipulation or any other misconduct is.” Further, “the way a senior manager approaches issues around diversity may be relevant to our assessment of their competence and character.”
In relation to gender, Mr Woolard pointed out that current statistics show that only 15% of directors and 6.5% of CEOs across FCA regulated firms are women. The percentage of women at the senior management level below the Board has gone from 14% in 2008 to only 15.5% in 2018 – just a 1.5% rise. The FCA itself is an active participant in the Women in Finance initiative , and has set targets of 45% of senior leadership team to identify as female by 2020, and 50% by 2025.
Mr Woolard notes that diversity is not only about gender: it also includes individuals from a black, Asian, and minority ethnic (BAME) background and social mobility. The FCA, which ranked 37th in last year’s Social Mobility Index, is doing a number of things, such as reverse mentoring of senior staff by BAME colleagues, sponsorship programmes, reaching out to recruit from a much wider pool of universities, expanding apprenticeship programmes, and demanding more of line managers, to ensure the voices of all employees is heard. It is reasonable to imagine that the FCA would expect a similar approach from financial organisations.
‘Misconduct is misconduct, whether financial or not’ – With the broad implementation of the Senior Managers and Certification Regime (SMCR) which reinforces principle of individual accountability senior leaders of financial institutions, it may leave no room for tolerance of behaviours that are incompatible with a workplace where everybody is safe.
What can be done to improve workplace behaviours? The answer might sound obvious but it is simple and it has proven effective: interactive training on diversity and improving the ‘tone from the top’.