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

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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.

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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”. For example, in 2016 the Bank consulted with the Royal National Institute of Blind People to develop notes with tactile features that were more accessible to people with sight loss.

One of Carney’s first appointments on joining the Bank also showed the importance he placed on diversity, with the selection of former Morgan Stanley executive Charlotte Hogg as his chief operating officer to improve communication and promote diversity. A year later, the government appointed Minouche Shafik as deputy governor.

In March 2014, the Bank launched its “One Bank” restructuring plan following an increase in its size and remit. One of the four pillars of the plan was “talent and diversity”, with the Bank aiming to “reflect the diversity of the UK” and “value diverse ideas and open debate, while developing and empowering people at all levels to take initiative and make things happen”. But despite these substantial changes, when Carney gave a speech to launch the One Bank strategy, he failed to mention diversity.

Fast forward to March 2016, when the Bank of England hosted the launch of Jayne-Anne Gadhia’s government-backed Empowering Productivity review of senior women in financial services. This occasion marked the moment Carney delivered his first public speech on diversity:

“Greater diversity – in all its forms, cognitive, gender, background, ethnicity, religion – can help transform the financial sector…. We recognised that, as a public institution, our workforce should reflect the diversity of this country. We saw that given our broad range of new powers and tremendous responsibilities, we needed to work more effectively and collaboratively across all aspects of One Bank. And we concluded that we needed to be more diverse and open to different ideas and strong internal challenge, not only to avoid the dangers of groupthink, but also to harness the best from all of our people.”

It was around this time that the Bank created a senior D&I role, hiring a head of inclusion. In June 2016, the Bank incorporated diversity and inclusion reporting into its Annual Report for the first time, alongside how it was progressing against its diversity targets, which were now regularly reviewed and challenged by the Court of Directors – a signal of diversity moving from the periphery to the established core of strategy and how it was communicated.

And in February 2017, Carney mentioned the importance of inclusion in a formal speech for the first time:

“It isn’t enough for us to reflect diversity, however; we need also to choose inclusiveness. Inclusiveness unlocks the true value of an organisation’s diversity; through inclusion people can realise their full potential.”

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In spite of Carney’s public statements and the work that the Bank was doing internally to improve its workforce diversity, the highest profile parts of the Bank remained stubbornly white and male. With the departure of Minouche Shafik in February 2017 and Charlotte Hogg in March 2017, the Bank was left with no female deputy governors and just one woman among nine Monetary Policy Committee members (although shortly after Joanna Place was appointed chief operating officer, a role of equivalent status to the deputy governors).

The Bank came under fire from the Treasury Select Committee, which is a UK parliamentary committee made up of MPs who hold HM Treasury and its agencies (including the Bank of England and the Financial Conduct Authority) to account for expenditure, administration and policy. Following the appointment of two new deputy governors, one of whom was a woman, in October 2017 the Committee wrote in a letter to the Chancellor of the Exchequer that it was “concerned about the composition of the policy committees, and in particular about diversity at the most senior levels in the Bank of England”. While it is the government that appoints members to the Bank’s policy committees, the Treasury Select Committee was also critical of the Bank itself.

Nicky Morgan, then chair of the Committee, told the BBC’s Today programme: "The Bank is a role model for the rest of the City of London. It sends a message that if they can change, everyone can change."

Shortly after, the Bank published its gender pay gap for the first time (it was 24%) and in November 2017 it signed the HMT Women in Finance Charter. Various letters were fired back and forth between the then Chancellor Philip Hammond and Morgan about diversity at the Bank, further increasing newspaper column inches and fuelling public interest.

In its June 2018 report summarising its Women in Finance inquiry, the Treasury Select Committee said that the Bank should act as a role model to the sector:

“The regulators should continue to implement initiatives to improve their own representation of women at senior positions and reduce their gender pay gap. This will enable them to act as an effective role model to the rest of the industry.”

Shortly after, the Bank acquired a new chair, Bradley Fried. He too was questioned extensively by the Treasury Select Committee about diversity at the Bank, and he named diversity and inclusion among his five priorities upon taking up the role. He said:

“As the country’s financial vanguard, the Bank has a dual obligation to represent all of society and to lead the way for employers across the country in hiring as diverse a pool of people as possible.”

A month later, Carney significantly ramped up the tone of his language in his seven-page response to Morgan on diversity in public appointments. He said diversity “will remain one of the Bank's highest priorities…having a diverse workforce is essential to delivering our mission”.

While the Bank was facing scrutiny over its lack of senior level diversity, its own diversity strategy was shifting focus from representational diversity to emphasising inclusion and diversity of thought.

Senior Bank leaders had repeatedly discussed internally the importance of diversity of thought in running the Bank and avoiding mistakes – could the furore over the use of animal fat in bank notes, 6

which lead to a 140,000 signing a petition condemning the practice, have been avoided if the Bank had more perspectives around the table? Aspects of this idea of reaching, and in turn listening to, a wider range of voices came up in a March 2018 speech by Andy Haldane, the Bank’s chief economist, on the Bank’s approach to increasing its engagement with citizens on economics and finance:

“There is now a wide body of evidence, drawn from a wide variety of settings, on the benefits of combining the insights from expert and non-expert sources when making sense of a complex world, when forecasting an uncertain future. Harvesting insights from a non-expert audience appears, in these uncertain settings, to be especially valuable by providing diverse perspectives and different insights.”

The Bank defined diversity of thought as “recognising difference”, and worked with an external consultant to run a survey looking at the nuts and bolts of what the working environment felt like for people with different traits across seven inclusion criteria (click here to see New Financial’s summary of this project). The Bank published the survey results on its website in July 2018 – a further sign that it was ready to turn its internal focus outwards and become a leading public voice in the diversity debate.

As Carney nears the end of his tenure (he will leave in March 2020), the Bank has escalated its public messaging on diversity, with a marked increase in the number of senior talking heads it has put forward to talk about diversity at a wide range of public events. We see this as evidence that Carney is keen to cement diversity as one of his key legacies.

As you can see from our analysis (p1, p10) of the public speeches on diversity listed on the Bank’s website, in 2017 and 2018 Carney gave a handful of speeches on the subject. But in 2019, nine senior Bank staff gave 12 public speeches discussing diversity at a wide range of events, from specialist insurance and foreign exchange conferences to awards ceremonies.

These speeches signal that the Bank is increasingly confident portraying itself as a role model to the wider financial services sector on diversity. Carney has also directly called on the financial sector to tackle diversity, showing that the Bank understands the benefits of greater diversity of thought to the wider financial system. Speaking at the Women in Banking and Finance Awards in June 2019, he said:

“Diversity leads to better decision-making, more creative thinking and reduces the risks of groupthink and bias…This last point is critical. Almost all decisions in finance are taken under uncertainty, making it especially important that decision makers are exposed to a range of views, and engage in open debates with people whose perspectives challenge the prevailing wisdom.”

A week later, Anna Sweeney, the Bank’s director of insurance supervision, reinforced this groupthink point at an insurance industry event: “As a prudential regulator, the PRA cares particularly about how groupthink impacts the quality of decision-making.”

Sweeney also commented on contemporaneous reports of sexual harassment and bullying at Lloyd’s of London. She said: “We and the FCA will be monitoring progress closely and talking to Lloyd’s to see demonstrable progress.” This is evidence of how seriously both regulators take diversity and inclusion.

Interestingly, the Bank has also started discussing diversity with other central banks. In May 2018, the Bank hosted the first tri-partite conference on gender progression, in collaboration with the European 7

Central Bank and the Federal Reserve Board. The second conference was hosted by the ECB in Frankfurt in October 2019, and Haldane gave a speech on ethnicity pay gaps.

And the Bank has not just focused on gender diversity. In March 2019 it signed the Race at Work charter. When it announced that Alan Turing would be the face of the new £50 note in July 2019, the press release accompanying the announcement referenced Turing’s homosexuality, his posthumous pardon by the Queen and his importance in not only science but also wider society. Two weeks later, the Bank launched its own Out and Proud Charter, which sets out five principles to support LGBT+ colleagues, and invited other organisations to adopt it.

Also in July 2019, the Bank hosted an event to raise awareness about the menopause, and during the Bank’s September inclusion week programme its chair Bradley Fried hosted an internal event on social mobility with academic Sam Friedman. The Bank is working on a social mobility action plan and will be taking part in a new piece of research in 2020 with the Bridge Group, which is conducting a study of social mobility in banking and asset management in collaboration with City of London Corporation.

In September the Bank expanded the head of inclusion’s role to include sustainability, a notable indicator of the Bank’s direction of thought on the topic, and in October joined the Valuable 500 disability inclusion campaign.

And in January 2020, the Bank hosted a roundtable discussion on setting diversity targets. All this high-profile activity across the diversity spectrum is a far cry from its 1950s career brochures.

The search for a new Bank governor officially began in April 2019 and diversity was prioritised in the recruitment process. Philip Hammond, the Chancellor at that time, appointed specialist diversity headhunter Sapphire Partners to conduct the search, and there was extensive press speculation about whether the Bank might appoint its first female governor in its 325-year history. The Bank explicitly stated in its job description that the new governor needed a “clear commitment to and track record in promoting inclusion and diversity within the workplace is essential”.

The top job went to Andrew Bailey, a former deputy governor at the Bank and chief executive of the PRA, and most recently CEO of the FCA. In his statement upon accepting the role, Bailey said: “I am committed to the Bank being an accessible and approachable institution, as well as an open and diverse place to work.”

Whether he will choose to maintain or even elevate diversity as a strategic priority at the Bank is yet to be seen, but given the trajectory of the FCA’s approach to diversity in recent years, we have good reason to be hopeful.

In conclusion, the Bank of England has a clear agenda around why diversity is important from its perspective as a central bank. Let’s answer the questions we set out at the start.

• How does diversity fit into the Bank’s remit?

While diversity is not explicitly part of its mission or its regulatory remit, the Bank has clearly stated that a diverse workforce is fundamental to its public mission. And there is evidence to suggest that the Bank thinks that greater workforce diversity in the financial services sector would make the financial system more resilient and stable. 8

• Why is the Bank talking about diversity?

As an iconic symbol of UK finance, the Bank has taken more than its fair share of flak as the public debate on diversity has intensified in recent years. The Bank has set diversity as a strategic priority for itself and it is stepping up to become a role model to the wider financial services industry on diversity and exert its ‘soft power’ to influence firms. Although the Bank’s set up is quite different from the rest of the industry, it faces similar issues of homogeneity at the top and a unique cultural legacy that makes improving diversity just as challenging.

• What is the Bank saying about diversity?

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. It has made public statements on aspects of representational diversity and also on the importance of inclusion, mental health and wellbeing, and diversity of thought.

• What should the financial services industry read into the Bank’s approach?

This discussion is not going away. 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. 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, its importance to financial services, and where it sits within their regulatory remits. And it is not just in the UK – other central banks are determining their own positions on diversity.

With thanks to Becky Pritchard, contributor to New Financial’s diversity and culture coverage, for researching this paper, and to the Bank of England for sanity checking it.

New Financial is a think tank and forum that believes Europe needs bigger and better capital markets to help drive its recovery and growth. We believe diversity in its broadest sense is not only an essential part of running a sustainable business but fundamental to addressing cultural change.

For more information on New Financial, or to offer feedback on this research, please contact Yasmine Chinwala, Partner, [email protected], +44 203 743 8268 / +44 7966 555792

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1. Women in the Bank, their history: 1894-2017 2. The Bank of England, A Career for Women, 1964 brochure from the Bank of England Archive 3. Bank of England Annual Report 2012 4. “One Mission, One Bank”, speech by Mark Carney, March 2014 5. PRA rulebook 6. PRA reminder letter on rules on diversity, August 2016 7. Progress delivering the “One Mission, One Bank” strategy, June 2017 8. Bank of England’s 2017 gender pay gap report 9. Mark Carney’s oral evidence to the Treasury Committee, October 2017 10. Internal staff survey results, October 2017 11. “Climbing the Public Engagement Ladder”, speech by Andrew Haldane, chief economist, March 2018 12. Article for Mental Health Awareness Week by Mark Carney, May 2018 13. Treasury Select Committee’s Women in Finance Inquiry, 2018 14. New Financial’s summary of the TSC Women in Finance Inquiry, June 2018 15. Appointment of Bradley Fried as Chair of Court, Treasury Select Committee report, June 2018 16. New Financial summary of roundtable discussion with Simon Fillery, head of inclusion at the Bank of England, on cognitive diversity, July 2018 17. Bank of England: Cognitive diversity and inclusion survey findings, July 2018 18. In conversation with Mark Carney, Governor of the Bank of England, February 2019 19. Treasury Committee oral evidence, June 2019

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Date Speaker Occasion and/or location Speech title Mar 2016 Mark Carney Empowering Productivity Review Transforming diversity in launch, Bank of England financial services May 2016 Andy Haldane Scottish Business Friends Dinner, The Sneetches – unconscious bias Edinburgh and promoting diversity Nov 2016 Andy Haldane Launch of the Diversity Project Opening remarks on the benefits of diversity Feb 2017 Mark Carney Bank of England Reflecting diversity, choosing inclusion Feb 2018 Mark Carney Regent’s University, London Reflections on leadership in a disruptive age Mar 2018 Joanna Place Women in Finance Summit, London Building an inclusive culture: Are opportunities enough? April Mark Carney EconoME launch event, Bank of Opening remarks 2018 England Mar 2019 Mark Carney Bank of England Investing in ethnicity and race May 2019 Joanna Place Women of The Square Mile 2019, Gender diversity is good for London wider diversity and greater inclusion June Victoria Cleland European Women Payments Network Payments: diversity matters 2019 Annual Event, Amsterdam June Mark Carney Women in Banking and Finance 22nd Finance by all, for all 2019 Annual Awards, London June Anna Sweeney Insurance Insider Progress Network Making impactful change 2019 event, London June Andrew Hauser Next Step FX: Promoting Career Why diverse markets need 2019 Opportunities for Women in Foreign diverse talent Exchange July 2019 Ben Broadbent Helping children and young people Financial education and the Bank learn about money conference, London of England July 2019 Mark Carney Science and Industry Museum, £50 note character selection Manchester announcement July 2019 Sarah John The Royal Institution Science and banknotes July 2019 Sarah Breeden LGBT The Network of Networks Out and proud – a note-worthy (TNON) breakfast, Bank of England cause Sept 2019 Victoria Cleland House of Lords Celebrating inclusion – National Inclusion Week Launch Oct 2019 Andy Haldane Bank of England, Federal Reserve Bank Understanding pay gaps and European Central Bank conference on Gender and Career Progression

Source: New Financial analysis of Bank of England speeches. NB, this does not include panels that Bank staff may have been invited to speak on, or press releases.