On 8 March 2024, the Sexism in the City report was released by the House of Commons Treasury Committee, marking a significant moment in the ongoing discussion surrounding diversity and inclusion ('D&I') in the financial sector. This report was the culmination of an inquiry launched in July 2023, serving as a follow-up to the Treasury Committee 'Women in Finance' investigation initiated five years prior in 2018.
The inquiry was an examination of the key issues in the financial services industry, such as the persistent gender pay gap, the prevalence of sexual harassment and misogyny. Despite uncovering modest advancements, the report ultimately painted a sobering picture of the pace of change and pointed to an overarching culture within the sector that continues to hinder significant progress, particularly in combating sexual harassment and bullying.
General observations
A significant factor in the minimal change with the 2018 report is the approach of firms towards D&I, which the Committee found was often treated as a superficial 'tick-box' exercise rather than being embraced as a fundamental business strategy. This has resulted in only slight enhancements in the proportion of women occupying senior roles within financial services firms and the gender pay gap, while slightly improved, remains the most pronounced across all sectors in the UK economy.
Moreover, the report uncovered a "shocking" level of sexual harassment and bullying within the sector and the handling of such allegations by financial services firms was found to be severely lacking. In particular, the report highlighted the prevalent misuse of non-disclosure agreements (NDAs), which the Committee concluded often serve to silence victims and force them out of their jobs, while the perpetrators are allowed to continue their careers and, potentially, their abusive behaviour.
Recommendations for the FCA
The report noted the FCA's influence in fostering D&I within financial services firms and welcomed their consultation paper, 'Diversity and Inclusion in the Financial Sector – Working Together to Drive Change' (CP23/20). CP23/20 sets out the FCA's proposed changes to the Handbook which, if incorporated in their current draft form, will impose various requirements on firms around D&I initiatives and their handling of non-financial misconduct. For more information on CP23/20, please read our article, 'Analysing the FCA's Consultation Paper on Diversity and Inclusion in the Financial Sector'.
The committee did, however, have some concerns about aspects of the FCA's proposed changes and made a number of recommendations for the FCA to consider:
- D&I reporting: The committee expressed reservations about the FCA's proposals to mandate firms to devise strategies and report D&I data, citing concerns over the tangible benefits of such measures. For example, the proposed scheme may not encompass smaller firms, which are reported to have the most problematic cultures and diversity levels. Moreover, the approach risks reinforcing the 'tick-box' mentality rather than resolving it.
- Gender pay gap: Regarding pay, the committee noted that the gender bonus gap is typically even larger than the gender pay gap and they are therefore concerned that the removal of the bankers' bonus cap could increase the difference between the overall pay of men and women in financial services. The report urges the FCA and PRA to monitor the situation closely and to conduct a formal review of the impact of the bonus cap removal in two years' time.
- Sexual harassment: The report commended the FCA's proposals to strengthen their non-financial misconduct rules and enhance their ability to take action against individuals in sexual harassment cases, including to prevent ‘bad apples’ from being able to roll from job to job. However, it was expressed that clarification on what this means in practice would be beneficial, particularly in light of the potential overlap between the aims of the new duty to prevent sexual harassment in the Worker Protection Act 2023 ('WPA') and the FCA's proposals on non-financial misconduct in CP23/20. The report recommended that the FCA and the Equality and Human Rights Commission (EHRC) – who will enforce the new duty – clarify how they will work together to enforce the WPA.
- Whistleblowing: The report also recognised the FCA's whistleblowing hotline but suggested that an awareness campaign could significantly enhance its efficacy.
- NDAs: Additionally, the report advised that the FCA state explicitly that NDAs cannot legally prevent an individual from reporting harassment to the FCA, or crimes to the police. The FCA is encouraged to gather data on the use of NDAs in regulated firms concerning non-financial misconduct. This data would facilitate a comprehensive understanding of NDAs' role in the financial services sector and aid in devising strategies to address their misuse.
Recommendations for the Government
The report acknowledges that in some areas, government intervention is necessary to drive progress, for example:
- The report recommends that the Government encourage greater pay transparency and discourage the practice of asking job applicants about their salary history, which perpetuates the gender pay gap.
- The report notes the Government's review of whistleblowing laws and recommends strengthening the legislation to better protect and support whistleblowers of sexual harassment.
- Further, the report advocates for legislation that bans the use of NDAs in harassment cases.
Conclusion
The Committee's report serves as a reminder that the journey towards improved D&I in the UK's financial sector is far from complete. While there have been some strides made since the 'Women in Finance' report of 2018, progress is slow and uneven, with cultural barriers and a tick-box approach to D&I still prevalent.
At the heart of these issues is the prevalence of poor culture within financial services firms. The findings in respect of the alarming levels of sexual harassment and bullying, in particular, underscore the need for a cultural shift within the industry. Though re-shaping firm culture is no easy task, the Committee's recommendations for both the FCA and the government, coupled with the FCA's intention in CP23/20 to clarify their expectations around the treatment of non-financial misconduct within firms, should go some way to increase the pace of change. .
It is vital that firms, senior managers and certification employees are aware of and prepared for the material changes to the FCA Handbook which, if as drafted in CP23/20, will incorporate detailed requirements around firm D&I strategies, the treatment of reports of non-financial misconduct within firms and the associated impact on an individual's fitness and propriety. What is clear is that in order for firms to improve culture, advance D&I and tackle non-financial conduct, the regulator will expect firms to demonstrate clear, actionable strategies that go beyond mere compliance, placing an emphasis on firms to treat these matters not simply as a 'tick box' exercise but as a key business risk.