Pressure mounts for UK’s finance sector to tackle DEI failings

The financial services sector has come under renewed scrutiny over its progress – or lack of progress – on addressing a more inclusive workplace culture. A new report published by campaign group Reboot titled ‘Race to Equality: UK Financial Services 2024’ highlights the stark challenges the industry faces going into 2025. It reveals that many employees feel disillusioned with the lack of leadership on these issues. Noreen Biddle Shah, founder of Reboot, has written to FCA Chief Executive Nikhil Rathi calling for decisive action by the regulator in embedding diversity and inclusion as a core regulatory priority within the sector. We’ll speak to a D&I expert about how firms can make progress ahead of regulatory changes which are, almost certainly, on the way.  

The Reboot Race to Equality report paints a worrying picture of where the financial services sector currently stands. It shows only 4% of firms have voluntarily disclosed their ethnicity pay gap data which Reboot says not only limits much needed progress but also leaves firms unprepared for future changes which we know are on the way. It also highlights a lack of leadership engagement, with only 35% of respondents feeling that senior leaders are doing enough to address racial inequalities. Reboot emphasizes that leadership buy-in is critical not only for meeting potential regulatory requirements but also for fostering a workplace culture where employees feel safe to raise concerns without fear of career repercussions. Reboot is calling for regulatory intervention. 

The regulators are onto this, albeit progress is slow. The FCA and the PRA launched a consultation in July 2023 proposing new diversity and inclusion measures for financial services firms. These include setting diversity targets, reporting workforce data, and addressing non-financial misconduct. The FCA says it plans to finalise its policy on non-financial misconduct in early 2025 and announce next steps on diversity and inclusion in mid-2025 with regulatory changes to follow.

The Reboot report and Noreen Biddle Shah’s letter to the FCA reflect a wider, urgent conversation happening across the FS sector. In December, key stakeholders, including Dame Amanda Blanc, the Women in Finance Charter Champion, and Sam Woods, CEO of the Prudential Regulation Authority, wrote to the Treasury Select Committee on similar issues. Their central message is the time for voluntary efforts is over and firms must act decisively to embrace transparency and accountability before regulations make it mandatory.

Meanwhile, there’s increasing momentum for new legislation on the issue of ethnicity pay gap reporting. The Equality (Race and Disability) Bill, currently undergoing parliamentary scrutiny, proposes mandatory pay gap reporting for ethnicity and disability across all sectors, modelled on the gender pay gap framework. For employers with more than 250 staff, this will mean not just reporting figures but also publishing action plans to tackle disparities.

In recent months we have been working closely with clients in the FS sector helping them prepare for what lies ahead. Shuabe Shabudin is an employment lawyer who has been working alongside our D&I consultancy, Brook Graham and earlier he joined me by video-link to discuss how firms can address racial and ethnic inequality:  

Shuabe Shabudin: “So, Brook Graham work very closely with us as lawyers. So, for example, what we would do as lawyers is maybe look at the legals behind a particular intention of an organisation. So, they may want to increase the representation of a particular ethnic minority. We might work out how that can be done by way of positive action, for example, we might look at targets, we might look at quotas, we might look at the discriminatory angles behind that. Once we've done that work, once we've come up with the plan, if you like, it would then be for us to be supported by Brook Graham as to how that plan can be realised, how that can be brought to life. They would be acting on the ground, as it were, and really working with the organisation to embed, to create, to have that cultural change or that that that business shift change, whatever it might be, that has been identified by us on the legal side.”

Joe Glavina: “Can you tell me about the scope of this support on race leadership that we're providing to clients. I know it’s helping clients in the FS sector but, as I understand it, it can work equally well in any sector. Is that right?” 

Shuabe Shabudin: “Yes, very much so. So, I think the first thing to say is that the support we're able to provide is sector agnostic. We are, of course, able to provide tailored support based on the sectors that we work in but, overall, the message that I want to be giving is that we are able to provide support in relation to addressing race and ethnicity inequality in a number of different ways. So, as we're discussing here, that might be in terms of target setting, rationale setting, it may also be in terms of investigating issues, it may be in terms of auditing, we can support by way of training, tailored training, targeted training, lots of different ways that can be provided and even moving down to the onboarding process, so ensuring that a recruitment process is as inclusive as possible. So the product, the race leadership product, is, as I say, both sector agnostic and much wider than just the type of support that we've been discussing today in relation to how we can support FS firms with the very likely regulatory requirements that are going to come in as a result of the FCA and PRA consultations.”

Joe Glavina: “What are business reasons for firms to address this issue, Shuabe? What’s the driver for them?” 

Shuabe Shabudin: “I think there are a few points. Clearly, there's the moral and the ethical reason behind it, which is it's just the right thing to do, but then, of course, there is the business reason. Now the business reason has many different facets. For example, there is still a war on talent, there is more of a movement towards wellbeing featuring quite highly on what a job applicant sees as being important to them. There's also belonging. There have been a number of organisations, a number of sectors, who have needed to protect their workforce, we can't afford to be losing good talent. So, I would say it boils down to those areas really, and just to say as well that there was some really good work that was done in the wake, and in the aftermath, of the George Floyd murder so I think firms and organisations may in some ways be doing themselves a bit of a disservice by not refocusing the spotlight on any commitments that were made and really seeing through that change for all of the benefits that that I've just mentioned.”

If you would like further details about our Race Leadership product please do contact Shuabe - his details are on the screen for you - or alternatively contact your usual Pinsent Masons adviser. 

- Link to Reboot report: ‘Race to Equality: UK Financial Services 2024’