Bank of England Has Ratcheted up Its Public Discourse on the Topic of Diversity and Why It Is Important to Financial Services – As Illustrated by the Chart Below
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Over the past six months, the Bank of England has ratcheted up its public discourse on the topic of diversity and why it is important to financial services – as illustrated by the chart below. The Bank finds its voice on diversity Number of speeches on diversity given by Bank of England speakers over the past five years 12 3 3 1 0 2015 2016 2017 2018 2019 Source: New Financial analysis of Bank of England speeches At first glance, this flurry of activity appears to have come from a standing start, but in fact it has been building slowly over a number of years. In this short paper, we build a timeline showing how the Bank’s thinking on diversity and inclusion and its position as a role model is evolving, based on the Bank’s own publications and public announcements. We will highlight the key messages for the financial services industry to note. This paper asks: • How does diversity fit into the Bank’s remit? • Why is the Bank talking about diversity? • What is the Bank saying about diversity? • What should the financial services industry read into the Bank’s approach? Here are our top five takeaways: 1) The Bank has named diversity as a strategic priority across multiple strands, and it is encouraging the financial services industry to follow suit. 2) The Bank wants to be a role model for the wider financial services sector and exert its ‘soft power’ to influence firms. 3) The Bank focuses on diversity to reflect the public it serves, to build trust, and it believes diversity leads to more creative thinking and reduces the risks of groupthink and bias. 4) While much of the internal work and increasingly public messaging on diversity took place under Mark Carney’s leadership, the new governor is unlikely to drop the baton. 5) The UK financial services industry needs to stay alert to a pincer movement from its key regulators on diversity – both the Financial Conduct Authority and the Bank of England have heightened their understanding of diversity and its importance to financial services. 2 As the UK’s central bank, the Bank of England’s overarching mission is to “promote the good of the people of the United Kingdom by maintaining monetary and financial stability”. Via the Prudential Regulatory Authority, it supervises about 1,500 financial services firms and focuses on harm that firms could cause to financial stability. Unlike some other UK regulators, the Bank does not have an explicit mandate around diversity in its statutory powers. For example, the Solicitors’ Regulatory Authority must encourage “an independent, strong, diverse and effective legal profession”, as set out in the Legal Services Act 2007. One could argue that greater workforce diversity in the financial services industry could contribute to stability of the financial system. The Bank has considered this – for example, in a 2019 speech, Sarah Breeden, executive director of UK Deposit Takers Supervision, draws an analogy between workforce diversity and a bank with a diversified portfolio. However, so far the Bank has chosen not to link diversity explicitly to its prudential regulatory remit, other than to require banks and insurers to promote diversity among board members and publish their selection policy. The Bank’s approach is noticeably different from the UK’s Financial Conduct Authority – and understandably so. While diversity is not explicit to the FCA’s mission either, it too has become increasingly vocal over the past two years about the importance of diversity as its understanding has developed of how culture, diversity and inclusion impact conduct (click here for New Financial’s paper on the FCA’s approach to diversity). A key driver for the FCA was the introduction of the Public Sector Equality Duty (PSED) legislation in 2011, which it interpreted as a platform to address diversity in all aspects of its mission. Diversity is a more tangible fit for the FCA because it runs the regulatory agenda on conduct, it has a say in who is fit and proper (via the Senior Managers Regime) to run the 50,000 financial services companies it regulates, and it has much closer links to the consumer. Looking back to the Bank’s founding charter of 1694, its original purpose to “promote the public good and benefit of our people” was somewhat broader and vaguer. This wider definition sets out an aim of public service, and it is this historical legacy that we increasingly see the Bank interpret as a duty to use its position, power and influence to implicitly engage with and shape the financial services industry – for example, on the subject of diversity. In a February 2019 blog post, the Bank’s Governor Mark Carney clearly and succinctly summarises why diversity is important to the Bank: “We value diversity for at least three reasons. First, a public institution needs to reflect the public it serves. Second, diversity helps build the trust we need to deliver our remits. Third, it is well established that diversity leads to more creative thinking and reduces the risks of groupthink and bias.” But these reasons were not always so well articulated. The Bank has been under intense pressure from government, policymakers and the media over the past three years to improve the diversity of its own workforce and to be more inclusive of the wider population it serves in its decision-making. The Bank has faced highly vocal and public criticism over its lack of women in senior roles, the lack of women on UK bank notes, and even the use of beef tallow in the production of plastic bank notes. 3 Over this period, the Bank has undertaken significant internal work to improve its understanding and measurement of a number of diversity strands. The Bank has introduced ambitious diversity targets for gender and Black, Asian and ethnic minorities (BAME), regularly publishes a broad range of diversity data, signed up to the HM Treasury Women in Finance Charter and has shifted its internal tone towards inclusion and diversity of thought. As the Bank has become increasingly confident that it understands how and why diversity and inclusion are important to it as an employer, it is now stepping up as a role model and using its public platform to influence the wider financial services sector on the topic of diversity. To get a sense of how far the Bank has come on diversity, it is worth a quick recap of the Bank’s long history, which continues to impact its culture to this day. Despite its nickname as the Old Lady of Threadneedle Street, the Bank of England remained an exclusively male institution for the first 200 years of its existence. It wasn’t until 1893 that the Bank started employing women, but only for jobs normally done by teenage boys – the first two female employees sorted bank notes, despite being Oxbridge graduates with first class degrees. During the war years, the number of women working at the Bank swelled but women were still largely restricted to clerical roles. A 1956 career brochure shows the clear split between what was expected of male and female staff – “a man may become an expert on the finances of Commonwealth and foreign countries”, while for a woman, “whatever her work may be, she will always find herself in good company and surroundings”. From the 1970s onwards, the Bank became an equal opportunities employer but the unwritten code of separate jobs for men and women remained. It wasn’t until the 1990s that the Bank appointed its first woman and first black man to the Bank’s Court of Directors (effectively its governing board). By 2000, just 6% of the Bank’s senior management were female and diversity remained relatively low on management’s agenda. The Bank published its first diversity strategy in 2006, which set an ambitious programme to improve the recruitment and retention of women. Two key initiatives of this strategy were the launch of the Bank’s women’s network and a new flexible working policy. In 2012 (notably a year after the PSED legislation came into force), the Bank produced its first Equality Report, which included data on the proportions of women and ethnic minorities of all staff and at each career grade. It also published targets for female representation and ethnic minorities. Mervyn King, governor at the time, introduced the report by saying that “equality, diversity and working in an inclusive environment are key to achieving this by ensuring that we tap all the talent available”. In the Bank’s 2013 update to the Equality Report, it included data for disability and sexual orientation profiles for the first time. But, the cultural legacy of the “Bank man” persisted. Diversity did not become a permanent fixture on the agenda of senior management until the appointment of Canadian-born Carney in July 2013, who was the 120th in an unbroken line of white men to become governor of the Bank. 4 Carney said that it took him “about five minutes” on the job to realise that the Bank had a problem with gender diversity. Indeed, Carney was thrown in at the deep end – on his first day he held internal meetings to discuss female representation on bank notes, after a public outcry that there would be no women (except the Queen) pictured on UK bank notes after Elizabeth Fry was replaced by Winston Churchill on the £5 note. Carney was swift to act. In November 2013, he told the Treasury Select Committee that improving diversity would be "central to our priorities in the coming years" and the next month, the Bank announced new guidelines for how it would select historical characters for bank notes that “put diversity and inclusivity at the heart of the selection criteria”.