UK finance watchdog FCA (Financial Conduct Authority), is considering following in the footsteps of the US and making it a requirement for companies to meet diversity standards if they want to be listed.
“In the US, we have seen the Nasdaq take the lead with its listing rules; which will require all companies listed on its US exchange to have, or explain why they do not have, at least two diverse directors. As part of our regulatory work on diversity and inclusion and the listings framework, we will be exploring whether we should make similar requirements part of our premium listing rules,” stated the FCA’s CEO Nikhil Rathi, at the launch of the HM Treasury Women in Finance Charter Annual Review yesterday.
Many investors are already taking the lead in this area. “One leading investment bank will only underwrite IPOs in the US and Europe where the company listing has at least one diverse board member. They said they would raise this target to two diverse candidates for each IPO client next year,” he added.
MORE DIVERSITY PROGRESS NEEDED
Although diversity progress is being made in the UK regarding gender diversity, women still represent less than a third of senior management. Additionally, fewer than one in 10 management roles in financial services are held by Black, Asian or minority ethnic people. The Parker Review reported that there were only 80 directors of colour in the FTSE250 – 5% of the total, as reported. “And where there are directors of colour they tend to be concentrated in a small number of firms and few hold the positions of CEO or Chair. The number of women of colour in senior positions in financial services is a particular concern,” noted Rathi.
This lack of diversity at the top raises questions about firms’ ability to understand the different communities they serve, and their different needs. “Our Financial Lives research shows Black, Asian and minority ethnic adults are disproportionately represented among the growing number of vulnerable consumers – and so at greater risk of financial harm,” he added.
Rathi wants all capital players in the industry to consider the reasons why there are so few female CEOs and CFOs or CEOs and CFOs of colour presenting during IPOs or when capital is being raised. “Are there challenges in the culture of private equity, underwriting, equity syndication? What more can we do to sponsor and celebrate female business leaders and entrepreneurs?” he highlighted.
ACCOUNTABILITY FOR DIVERSITY
The finance watchdog said it’s also planning to crackdown on finance firms that don’t improve diversity on their boards and workforce. “In the years ahead, if we don’t see improvements in diversity at senior levels and better answers, we will also consider how to best use our powers,” warned Rathi. “This is something we will consider over the next year, in work led by Georgina Philippou, until recently the FCA’s Chief Operating Officer. There are supervisory tools we can draw on. For example, I want to consider whether the diversity of management teams – and the inclusivity of the management culture they create – could be part of our consideration of senior manager applications.”
As an employer, the FCA is also “determined to improve our own diversity and to work on our culture to ensure it is inclusive”, added Rathi. As a regulator, he said he wants the same from the firms it oversees and in the markets it regulates. “Not because it is a social good – although, frankly, that should be enough. We care because diversity reduces conduct risk and those firms that fail to reflect society run the risk of poorly serving diverse communities. And, at that point, diversity and inclusion become regulatory issues,” he concluded.
Click here to read the full speech made by FCA’s CEO Nikhil Rathi.
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