Culture, Diversity & Inclusion: The Issue Financial Services Can’t Afford to Ignore
Is workplace culture a priority on your firm’s agenda? Two recent developments have highlighted why culture should be front of mind in financial services. This blog looks at the issues firms can’t afford to ignore – and offers you a sneak preview of BrightPool’s upcoming report on conduct, culture, diversity and inclusion.
Two developments in recent weeks have brought the culture of financial services firms sharply back into focus. Negative press stories and increased FCA supervision have highlighted the risks that both firms and individuals face.
1. Negative media coverage
In the wake of recent stories about Lloyds of London, non-financial misconduct and culture have returned to the spotlight. At present, firms are understandably nervous about sexual misconduct allegations, #MeToo scandals, whistleblowing and a lack of representation of diverse backgrounds at Board level.
Negative headlines create a loss of trust and reputational damage, leading to a commercial cost to individual firms. Financial services businesses shouldn’t underestimate the potential hit. For example, the cost of stock price reactions is on average nine times larger than the financial penalties imposed by the regulator. We’re talking very big sums.
Firms with a poor reputation on culture and diversity also have issues with recruitment and winning and retaining customers. Again, this has a knock-on effect on financial performance.
2. The FCA Business Plan 2019/20
The FCA has reiterated its focus on culture and governance as a key cross-sector priority with the publication of its 2019/20 Plan on April 17th (you can read it here, if you haven’t already). One of the key cultural indicators the FCA will be considering is each firm’s approach to diversity and inclusion – as diverse Boards and workforces have been shown to reduce misconduct risk and improve business performance.
The FCA will be working with firms to promote and embed a healthy culture, to reduce the risk of consumer harm from group-think, poor decision-making and risk-taking.
The FCA approaches supervision as a collaborative, preventative exercise that promotes inclusive cultures, not a compliance issue with rules to follow – but it still requires preparation to engage positively with the regulator and meet its expectations.
Outside of supervision, complaints or whistleblowing can lead to the FCA investigating a firm’s culture. Using its SM&CR powers, it is possible for the FCA to penalise individual leaders if discrimination, misconduct or risk-taking were enabled by a non-inclusive workplace culture.
So, are firms prepared?
Given the risks involved here, firms need to act on culture and diversity – and ensure they are properly prepared for increased FCA supervision. So, are companies aware of the challenges, and ready to react to them? These are the questions we set out to ask in a major research exercise undertaken in Spring 2019.
In the survey, leaders (Board, HR and risk & compliance) across 100 financial services businesses were asked about attitudes, concerns and challenges relating to misconduct, culture and diversity.
The full research report will be published later in May (pre-register for your copy). We can disclose some of the themes relevant to the discussion in this blog. The findings have indicated that firms are nervous about the threats they face – while three quarters of finance leaders are not fully prepared for the extension of FCA Supervision. Under half are acting on diversity specifically to foster healthier cultures. And there are barriers when trying to improve diversity. Hiring new people is cited as the biggest challenge in creating a diverse workplace (45% of responses).
Preparedness starts with an awareness of the issues. The report explores the FCA’s position and approach to culture and diversity – and links this to the actions firms can take, from measuring culture to improving strategies for boosting diversity (including BAME and women at Board level).
If conduct, culture or FCA supervision are relevant to your remit, then the report will be essential reading. To explore what supervision means to your firm, or to consider the broader culture and diversity issues that need addressing, pre-register for your copy.
If you’d like to talk to us about auditing culture, diversity and inclusion within your organisation and/or resourcing and talent management strategies to address your burning issues, please get in touch by emailing firstname.lastname@example.org or by calling 020 7936 3011.