The U.K.’s Financial Conduct Authority (FCA) will consider whether to introduce diversity requirements for public companies as part of a review of its listings rules.
In a speech on Wednesday, Nikhil Rathi, CEO of the FCA, addressed the issues of diversity and inclusion within the financial sector and among public companies generally.
Rathi noted that the Nasdaq is leading the way by revising its listing rules to require companies to have at least two diverse directors or explain why they don’t.
“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,” he said.
Within the financial sector, diversity is an increasingly important issue, he said, as evidence shows that diversity impacts firms’ risk management and their ability to understand clients’ differing needs.
“In our recent guidance on vulnerability, we said that firms — all firms — needed to understand the needs of their customers and be able to respond to them through product design, flexible consumer service and communications,” he said.
“I would question if any firm can adequately respond to the needs of these consumers if they do not have the diversity of background and experience required to overcome biases and blind spots.”
The importance of properly understanding client vulnerability is particularly significant in the wake of a pandemic that’s been tougher on women and ethnic minority communities, he noted.
Rathi also said that “research has suggested that greater gender diversity improves risk management culture and decreased the frequency of European banks’ misconduct fines.”
He noted that the FCA is working with the U.K.’s Prudential Regulation Authority on a common approach to diversity and inclusion for all financial services firms.
In the meantime, Rathi suggested that the FCA will consider taking action if the industry’s approach to diversity doesn’t improve in the years ahead.
“This is much broader than representation. It is about a firm’s culture,” he said, and suggested that supervisory tools could be used to address the issue.