Diversity and inclusion: Driving change in our industry

Speaker: Sheldon Mills, Executive Director, Consumers and Competition
Event: ABI Diversity, Equity & Inclusion Conference
Delivered: 22 November 2022
Note: this is the speech as drafted and may differ from the delivered version

Highlights

• Driving change and working with industry to achieve a more diverse and inclusive financial services industry is a core part of the objectives set out in our Business Plan priority on ESG and our wider strategy for 2022 to 2025. 
• Progress is being made, but there is more still to do. Firms and consumers face heightened pressures from the cost-of-living crisis but we must not lose sight of the importance of ensuring diverse representation and inclusive cultures.
• We have carried out work to understand how a sample of firms approach the collection of Diversity & Inclusion (D&I) data, D&I strategies, and inclusive cultures. 
• Firms are taking important steps to develop their capabilities. As an industry, we are encouraging firms to maintain and expand momentum on D&I. 

Action through leadership  

I recently attended an evening event of the Race Action Through Leadership. This is a group of insurance professionals who got together to amplify the influence of senior insurance leaders of colour, and to increase racial diversity and inclusivity in the industry. They believe that the insurance industry is a great place to work, but it’s predominantly white and isn’t attractive to minority ethnic talent to start and grow their careers.

At this event, CEOs and senior leaders in the insurance industry were learning about and sharing their own approach to encouraging, mentoring, and supporting minority ethnic individuals to join and prosper in their organisations. This wasn’t a jamboree – although we did have some amazing African tapas afterwards – it was work. Tackling a real business problem, how do we make the insurance industry fit for the future with the widest amount of talent available to make it prosper and succeed. I left inspired by what I’d seen and pleased that so many CEOs had taken the evening to work and engage on this topic.

Why diversity and inclusion matters

But what’s that got to do with the FCA and the PRA/Bank of England who regulate and supervise from a prudential and consumer protection perspective many of the firms represented at this event?  

Well at the FCA, we are committed as a regulator to taking action on D&I because progress on making financial services, including the insurance industry, representative of the country and communities it serves remains at best uneven, and at worst, stagnant.   

And thankfully, we are not alone in committing to taking action. I offer my congratulations to the Association of British Insurers (ABI) on publishing their Blueprint for Diversity, Equity, and Inclusion (DEI)[1] to coincide with this conference, and their longstanding commitment to driving positive change in the insurance sector. 

D&I is a 2-sided problem: first, internal representation within our organisations, second, externally, sufficient knowledge and understanding so that we can serve our diverse society well. That isn’t just about race or a gender debate, it’s also about social mobility, class or levelling-up – ensuring that we serve all communities. And many of those things ‘intersect’ with each other.  

The statistics speak for themselves and the ABI has done some great work in ensuring that they understand the data. Data is important and critical as we do this work.  For example, the ABI’s Talent & Diversity research[2] in 2021 found that only 24% of executives in the insurance industry were women, despite 55% of new industry joiners being women. Similarly, only 2% of insurance executives were minority ethnic, despite 10% of new industry joiners being minority ethnic. This is a telling statistic given that 14.4% of the UK population are minority ethnic and, in London, where a lot of the top leadership is located, the ethnic minority population is 40%.

While indicators such as these have shown incremental progress, they remain below what the public might expect. And examples of egregious conduct within the industry, such as the recent case of a Lloyd’s managing agent hosting a ‘boys’ night out’ event for staff, and mishandling a subsequent bullying & harassment case, are still coming to light. What is heartening though is the way that leadership at Lloyd’s responded, by investigating and taking action themselves. However, as an industry, we can and should do more. 

Our regulatory focus

Achieving a more diverse and inclusive financial services industry is an important part of the ESG priority the FCA has set out in our Business Plan for 2022 to 2025[3]. Promoting diversity and inclusion within financial services firms furthers our statutory objectives of protecting consumers, making markets work well and ensuring effective competition in consumers’ interests. There is growing evidence that a diversity of perspectives and thought, when part of an inclusive culture, results in better judgements and decision making. Research led by Francesca Arnaboldi at Bayes found that firms with gender diverse boards received significantly fewer misconduct fines. 

We know that consumer price inflation has reached 11%, and Resolution Foundation has found[4] that inflation for the poorest tenth of households is even higher at 12.5%. While firms and consumers face heightened pressures from the cost-of-living crisis, we must not lose sight of the importance of ensuring diverse representation and inclusive cultures.

Our most recent Financial Lives Survey data [5]covering the first half of this year shows that compared with the rest of the UK population, disabled adults are twice as likely, and black individuals are almost twice as likely to have said that they find keeping up with their domestic bills and credit commitments to be a heavy burden. In that context, firms having a strong awareness of the diverse needs of all of their customers is vital. We believe that internal diversity and inclusion are essential to firms achieving this. 

Working towards change

In July 2021 we published with the PRA our discussion paper[6] on diversity & inclusion in the financial sector. You will all be keen to know what our final position is. I know this because we received over 180 responses, largely very positive. We thank the ABI and many of the firms attending for the valuable feedback you have provided.  

I would not want to pre-judge the final outcomes of our discussion paper as we and the PRA finalise our position on these issues before we are due to publish next year. However, firms within the insurance industry and beyond are, rightly, continuing to take steps forward. I want to highlight some of the D&I practices we have observed in a number of firms through a recent supervisory exercise and pilot data survey, the findings of which we will shortly publish. The observations focus on data, D&I strategies, and inclusive cultures. 

The potential of data 

Collecting and appropriately using D&I data lifts the fog of uncertainty. Good data allows firms to identify where they are doing well, and areas where intervention might be needed. It also allows firms to measure, and hold themselves accountable for, progress they are making. 

We observed that the firms are still mainly focusing their data collection efforts on the gender and ethnicity of their staff. Our survey showed that, as an example, less than a fifth of large firms collect data on the socio-economic background of their staff, the importance of which has been highlighted recently by the City of London’s Socioeconomic Diversity Taskforce and the launch of a new initiative, Progress Together[7], which seeks to promote socio-economic diversity within UK financial services. 

Given the poor levels of representation in the ABI statistics[2], it is understandable that some firms remain focused on gender and ethnicity, the most visible of diversity characteristics. However, we know that diversity extends far beyond what is visible. Firms should consider how much more they can learn, and how much more progress they can make, if they broaden the data they collect. 

Linked to this is employee participation. Many firms have told us that they want to do more, but are held back by low employee declaration rates. In our firm engagement, we found firms with the best declaration rates have worked hard to achieve this, with focused initiatives to build trust and understanding among staff. These included HR teams running dedicated sessions to explain how the data is used, and what insights they have already gleaned from it, and showcasing how easy completing the data form can be. Simple measures can make a big difference. 

For the leaders here today, my message is that it is up to you to create a culture in which your staff feel safe to disclose their diversity characteristics to you, and to put in place processes to use this data safely and effectively.  

Driving action through D&I strategies 

The second key observation I want to discuss is on D&I strategies. These are foundational pieces of work; in focusing minds, and driving action, at all levels of an organisation. 

We found that over 80% of the firms in our sample did have a D&I strategy in place. This is great progress. However, as leaders, you know that it isn’t just about setting a strategy. Execution, delivery, measurement, and accountability are key. What did we find?  

Well, we saw that most strategies were focused on gender, with ethnicity a close second. I often hear – and have seen in our own organisation – ‘we can only focus on one or two areas and get those right’ before moving onto others. Often the areas remain pretty static – gender and ethnicity; and then add-ons, disability one-year, LGBTQ+ another.  

Diversity is rich and our strategies should have a sufficiently broad base to enable equity for all.  That doesn’t mean one shouldn’t focus – but once you have the data, you will know where to place your focus. You will know where you aren’t getting it right. You can then look beyond the diversity characteristics which are visible, or currently in vogue. 

From what we have seen, the route to an effective strategy is if your HR or People teams do not view D&I data and strategies as 2 different projects; D&I data is the cornerstone of an effective D&I strategy.

Parallel to the emphasis on gender and ethnicity, we found that most firms focus their strategies on senior-level representation. Having diverse senior leaders is undoubtedly important, and bodies such as the Race Action Through Leadership are doing a fantastic job in ensuring that the voice of existing diverse leaders in the insurance industry are heard, as well as supporting future ones.  I remember personally as a young lawyer never seeing any black person in a senior role in my industry – I didn’t work with one, I didn’t meet one and I never got any understanding of their experience.  There was no one I saw who looked like me. So, leadership and visibility are really important. And this also motivated our new rules for listed companies earlier this year which obligated listed firms to disclose their progress against diversity targets for their board members, including Chairs and CEOs.

But it isn’t just about senior leadership. We won’t get senior leaders from diverse backgrounds with a magic wand. It takes serious work and the most purposeful D&I strategies we saw focused on building and developing a sustainable diverse talent pipeline from the point of recruitment and through the organisation to leadership.  

The data we have seen shows that diverse representation falls markedly between junior and middle-management levels. We face this challenge at the FCA too, and working to rectify this is a big focus of the FCA’s own internal DEI Strategy. Firms can only benefit if they take a similarly holistic view of diverse talent development and succession planning. And then if all organisations do this, when diverse talent moves around – we know people do – then we can still see the right support and succession planning across the industry to make the whole industry that diverse, equitable place I know the ABI and firms within it aspire to.

The importance of inclusivity  

The final observation I wish to discuss is inclusive cultures. For us, inclusion means that everyone feels involved, valued, respected, treated fairly, and that these elements are embedded into a firm’s culture. Given the FCA’s longstanding approach to supervising firm culture, it should surprise none of you that we believe that the benefits of diversity can only be realised within a healthy firm culture that actively promotes inclusivity. 

Most of the firms we spoke to recognised the value of inclusion, and wanted to take steps to develop inclusive cultures. However, we found that, in terms of actions, inclusion is not systematically approached alongside diversity. While some firms do aim to measure inclusion through staff surveys, and this is an important metric for firms to consider as part of their overall approach to D&I data, we believe it is unlikely a quantitative measurement alone will tell the full story. 

As we have found through much of our culture work, building a healthy and resilient culture is challenging, and requires consistent and focused action over time. We would not expect firms to develop this overnight. However, if firms want to make progress, they should consider what practical steps they can take to address the fundamental aspects of inclusivity, such as the welcoming of different perspectives. 

Instances of poor behaviour, like I referred to at the beginning of my speech, are rooted in, and enabled by, poor cultures. I am confident that if the firm involved had put in place a process to develop a healthy culture, that incident might have been avoided. As the famous adage goes, the second-best time to start such a process, if you haven’t already, is now. 

Making progress together 

On D&I, financial services still has a long way to go. However, I remain confident that a world leading financial centre, the City of London, which took a young black man from South Wales 20 years ago can become truly representative of the diverse communities it serves. 

Our research has shown that we are making progress. What we have seen in our study is that, across data, D&I strategies and inclusive cultures, firms are taking important steps to develop their capabilities. As an industry, what we have to focus on now is maintaining and expanding our momentum. 

The complete findings of the work I have referenced, ‘Understanding approaches to D&I in the FS industry‘, will be published shortly and each firm involved will already have received our feedback. I hope you all find it useful and insightful. And do keep an eye out for our consultation paper which we are planning to publish in 2023. We look forward to hearing your views and making progress as an industry, together.