Regulators need to better support culture change

Five years on from gender pay gap inquiry, City Hive's Bev Shah assesses progress made

The summer months can be a good time for reflection and to create new resolve – let’s face it, we all still adhere to the academic calendar. This year in UK the Treasury Committee set the topic for review, Sexism in the City, which launched in July.

Its call for evidence, which City Hive has contributed to along with many interested parties, asks for views on progress towards eliminating gender pay gaps since a 2018 inquiry, and also the role regulators should play to address sexual harassment and misogyny experienced by women in the financial industries.

Five years on, where are we and what’s next? Gender imbalance has been the canary in the mine with regards to lack of diversity across finance and investment. Opening this door has helped a plethora of individual initiatives develop awareness raising across different aspects of diversity.

Voluntary initiatives are not enough

The time has come for a more joined-up approach where regulators provide the context for firms to understand why these topics are important; not just from an equity perspective but because it will help democratise access to investing and the investment industry and guide towards better societal outcomes.

Relying on voluntary initiatives to overcome issues will mean glacial progress, and likely competition for scarce resources instead of a strategic approach to address long-term imbalances.

A macro approach is needed across firm culture. Much of our evidence was from the reporting data set now available from firms that are completing the ACT Framework – which is designed to understand a firm’s culture and how that influences what it can deliver to clients.

Our data shows that most reporting firms now say they are striving for, and open to, employees from different backgrounds. Most acknowledge that they believe this will lead to the best client outcomes but struggle to demonstrate this with data. Diversity data by itself does not give the narrative context of a firm’s commitment or direction of travel.

Progress on changing culture needs regulators to offer more support and guidance. There is a role for regulators to support a more effective data strategy, which could include giving firms more guidance on using milestones as indicators of progress towards their strategic goals.

Currently, the main area where targets are in play relates to representation of women – of course due to the Women in Finance Charter. This demonstrates the impact of regulatory intervention – both the good, in creating structures, objectives and targets, and the gaps across other areas of representation, and the slow pace of change (not helped by making the Charter voluntary during the pandemic). 

Build on progress since 2018

Firms are much better equipped with policies that support gender balance and diversity in general and are implementing awareness programmes. Certainly more structured areas such as internal recruitment have seen a shift in practice such as efforts to remove bias from process. However, more work to embed policies and address bias in their application is needed.

Regulators do have some key resources they can draw on that will not create major burdens on firms to adhere to new regulations – they can use existing requirements such as Consumer Duty or the Senior Manager Certification Regime that already speak to firm culture.

The guidance to these regulations should be enhanced to help firms deliver more inclusive practices, to understand how to demonstrate what good practice is in individual areas but also how to create a business-appropriate strategy for a firm. 

Our extensive conversations with firms in recent years shows, across the spectrum of awareness and commitment, that even the most committed firms are still keen for benchmarking to understand how they perform compared to peers. This should be leveraged to create a race to the top.