The Treasury Committee has called for an ‘end to impunity’ in its report following its Inquiry into Sexism in the City. It found that women working in the City continue to suffer under a misogynistic culture which is ‘holding back women’ and the report found a ‘shocking’ prevalence of sexual harassment and bullying.
An investigation was initiated in 2018 by the Treasury Committee, which highlighted the underrepresentation of women in senior positions within the financial services industry and a pay disparity. The most recent inquiry served as a follow up and was launched to examine what had changed. The Inquiry found, “disappointingly”, that progress has still been “too slow and patchy”. The financial services industry has the largest gender pay gap of any sector in the UK economy and if it continues to reduce at its current pace, it will take a further 70 years to close it. The report says many firms still treat diversity and inclusion as a ‘tick box’ exercise rather than a core business priority and that it is ‘shocking’ to hear how prevalent sexual harassment and bullying (up to and including serious sexual assault and even rape) still is in financial services, and how poorly firms handle allegations of such behaviours.
The Treasury Committee published recommendations alongside its report, including the following:
- The Government should strengthen the pay gap reporting regulations to incentivise firms to make faster progress, specifically that it be made mandatory for firms with a pay or bonus gap above a certain threshold to publish a narrative explaining the drivers of the gap(s) and an action plan for how they will reduce them.
- The recommendation that the employer size threshold for pay gap reporting be reduced from 250 employees to 50 employees, at least for firms in financial services.
- The introduction of legislation to ban the use of NDAs in harassment cases.
- Given the potential overlap between the aims of the new Worker Protection Act, which will be enforced by the Equality and Human Rights Commission (EHRC), and the proposals by the Financial Conduct Authority (FCA) on handling sexual misconduct in financial services, the Committee recommends that the EHRC and the FCA clarify how they will work together to enforce the Worker Protection Act.
- The Government should seek to strengthen whistleblowing legislation to provide greater protection and support to whistle-blowers, especially in sexual harassment cases.
- The recommendation that the Government introduces legislation to ban prospective employers from asking for salary history as part of the job application process.
As part of the inquiry, the FCA was asked to write to the Treasury Committee to outline which criminal offences ought to result in automatic prohibition from operating in financial services, on the basis that such a conviction would be incompatible with meeting the requirement to be a fit and proper person. In its reply to the Treasury Committee, the FCA explained that it is not calling for legislative change or proposing that there should be a list of such criminal offences, as it considers it might not be exhaustive nor sufficiently flexible to take account of individual circumstances of any particular matter.
Last year, together with the Prudential Regulation Authority (PRA), the FCA consulted on proposals to introduce a new regulatory framework on diversity and inclusion within the financial sector, which have been set out in a consultation paper (‘CP 23/20’). Steps have already been taken, with large, listed companies expected to ensure that the ’underrepresented sex’ makes up 40% of non-executive directors and 33% of all directors by 2026. In 2022 the FCA published rules on D&I disclosures for listed firms. The intention is to build on that and support progress on D&I in the financial services sector, consistent with Government and wider initiatives.
The report recommends that the regulators “drop their prescriptive plans for extensive data reporting and target setting, and instead focus their efforts on ensuring that the boards and senior leadership of firms take greater responsibility for improving diversity and inclusion”. The FCA and PRA proposals were described as being costly for firms to implement, with unclear benefits, and it is felt that the smaller firms that would not be captured are those that have worse levels of diversity and where cultures are likely to be more toxic.
In response to the Treasury Committee’s report, the FCA said that the starting point is ‘what gets measured gets done’ and data-driven measures will benefit firms, employees and the wider economy. The FCA notes that its proposals set out in CP 23/20 aim to give the FCA a greater ability to act than it has had in the past and this year it will prioritise proposals that tighten expectations on firms to tackle non-financial misconduct.
The report ultimately identified that responsibility for tackling these issues and driving much-needed cultural change has to sit with the senior leadership and boards of the financial service firms themselves, recommending that all such firms, particularly smaller, private businesses and hedge funds sign up to the voluntary Women in Finance Charter. The key takeaway for FS businesses, senior managers and certification employees is to be ready for the material changes to the FCA Handbook. If these are implemented in their current draft form, they will impose stricter requirements around D&I strategies, the treatment of reports of non-financial misconduct within firms and the associated impact on an individual’s fitness and propriety to undertake their role.