In a speech delivered on 17 March 2021 for the HM Treasury Women in Finance Charter Annual Review Launch 2021, FCA CEO Nikhil Rathi sent a warning to the financial services industry that diversity and inclusion should form a core part of firm and senior management culture, and that the regulator will start taking action where it fails to see improvements made.

A lack of diversity in senior management raises questions about firms’ ability to understand the varied needs of the diverse communities they serve. Results from the FCA’s Financial Lives research show that black, Asian and minority ethnic adults are disproportionately represented among the growing number of vulnerable consumers, and consequently at greater risk of financial harm. If firms do not have the diversity of background and experience required to overcome biases and blind spots, it is unclear how they can understand, and adequately respond to, the needs of vulnerable consumers. Diversity of senior management is therefore crucial to the FCA’s consideration of firms’ approaches to vulnerability.

Further, diversity and inclusion should form an important part of fostering a healthy firm culture, and staff should feel comfortable demonstrating and sharing their diversity of background and experience. Mr Rathi would like to see the 5 Conduct Questions programme on conduct risk expanded to capture the whole of the industry’s approaches to ensuring an open, inclusive environment for their employees.

If the FCA does not see improvements in diversity at senior levels, it will also consider how to best use its powers. This might involve the use of supervisory tools – for example, the FCA may look into whether the diversity of management teams, and the inclusivity of the management culture, could form part of the FCA’s consideration of senior manager applications. The FCA is working with the PRA on a joint approach to diversity and inclusion for all financial services firms, and will be exploring whether it should make similar requirements part of the premium listing rules to drive improvements in the capital markets space.

Next steps

Firms should expect the FCA to start asking much stronger questions about diversity and inclusion at senior levels when considering a firm’s culture, and to wrap those questions into whether a firm is complying with its obligations to treat customers, especially vulnerable customers, fairly. Firms should be asking themselves whether their management team is diverse enough to provide adequate challenge and create the right environment in which people of all backgrounds can speak up. Firms should also review their approach to vulnerable customers, and reflect on whether they are adequately incorporating diverse, representative considerations in designing their response through product design, customer service and communications.


Kim is a Knowledge Lawyer within the Financial Services Regulatory group at Baker McKenzie. Her expertise covers both contentious and non-contentious regulatory matters across a wide range of sectors. She is particularly interested in issues relating to investigations and enforcement, vulnerable customers, regulatory reform and change, and the impact of Brexit on financial services regulation.