House of Commons Treasury Committee Issues Findings on Sexism in Financial Services Industry

The UK House of Commons Treasury Committee published a report on 8 March, 2024 containing the findings of its inquiry into sexism in the financial services industry, citing a lack of cultural change in the sector as the main reason that “not much” has changed in the last five years. The report outlines recommendations of the committee for regulators on such topics as diversity and inclusion, removing barriers facing women, narrowing the gender pay gap, and sexual harassment, amongst others.

As a follow-up to its 2017 inquiry and 2018 report on Women in Finance, the House of Commons Treasury Committee (the Committee) launched an inquiry into sexism in the financial services industry in July 2023.

On 8 March 2024, the Committee published a report on the findings of its inquiry. In summary, the Committee expressed “significant concern” about the culture within the financial services sector that continues to hold back progress for women. [1] The report reveals that, while there have been incremental improvements for women working in the financial services industry, overall “far too little progress has been made and serious problems which should have been rooted out still persist.” [2]

In particular, the report notes that (1) many firms continue to treat diversity and inclusion (D&I) initiatives as a “tick box” exercise; (2) the gender pay gap has reduced only slightly; and (3) there has been a “lack of progress on sexual harassment and bullying, including serious sexual misconduct.” [3]

RECOMMENDATIONS

The Committee’s report highlights that responsibility for addressing the myriad issues identified should sit primarily with the senior leadership and boards of financial services firms. That said, the Committee report also notes that the government and regulators, including the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), have key roles to play in driving change in the industry.

To this end, the Committee made the following key recommendations (amongst others):

Diversity and Inclusion

The report reiterates that it is the responsibility of firms, boards, and investors to drive improvements in D&I and encourages firms to treat D&I initiatives as core business priorities. Additionally, the Committee’s report acknowledges and welcomes the proposals introduced by the FCA and PRA (on which we previously wrote) to take regulatory action to improve D&I efforts across the financial sector, including strengthening nonfinancial misconduct rules.

However, the Committee expressed caution in relation to the FCA and PRA proposals that would require firms to implement D&I strategies, collect and report certain diversity data, and set targets, opining that firms would likely treat these requirements as yet another “tick box” exercise rather than a true driver for change. Instead, the Committee recommended that the FCA and PRA drop these plans and shift their focus onto efforts for ensuring that boards and senior leadership of financial services firms of all sizes (rather than just those with 251 or more employees) take greater responsibility for improving D&I.

Barriers Facing Women

The report identifies maternity as a key barrier to women remaining in the financial services industry. The Committee recommended that the government and regulators encourage all firms to be transparent about their parental leave policies and consider equalising their offers of parental leave for men and women. The report also prompts the government and regulators to encourage firms to offer more roles on flexible or part-time bases as well as recognise the impact of and offer support around menopause.

Gender Pay

The report notes that the financial services industry has the largest gender pay gap of any sector in the UK economy, and that the gap is narrowing at a “glacial pace.” [4] The Committee stated that gender bonus gaps are often even larger than gender pay gaps, and cited the removal of the bankers’ bonus caps (on which we previously wrote) as a decision that may increase the difference between overall take-home pay of men and women in the financial services industry.

Accordingly, the Committee encouraged the FCA and PRA to closely monitor and formally review the impact of the removal of bonus caps. The Committee also recommended that the government strengthen pay gap reporting regulations to incentivise firms to increase the pace of progress and called for the government to take forward its pay transparency pilot (which was announced two years ago but has yet to be put into action).

Sexual Harassment

Finally, the Committee has called for urgent action to address the continuing prevalence of sexual harassment in the financial services sector [5]:

• Firms: The Committee has recommended that firms adopt a zero-tolerance approach to sexual harassment and ensure they have appropriate processes, policies, and trainings in place to address sexual harassment.
• Regulators: The Committee report also highlights the role of regulators in combating sexual harassment. While the Committee welcomed the FCA and PRA proposals around tackling nonfinancial misconduct (including sexual harassment), it also called for further clarity around how the proposals would work in practice. The Committee also acknowledged the new Worker Protection (Amendment of Equality Act 2010) Act 2023 (on which we previously wrote), which imposes a positive duty on employers to prevent sexual harassment, and has encouraged the FCA and the Equality and Human Rights Commission to clarify how they will work together to ensure firms are complying with this new duty. [6] Further, the Committee called on the FCA to raise awareness of its whistleblowing hotline, of which, the Committee said, there is limited awareness.
• Non-Disclosure Agreements: The Committee expressed its shock at the widespread misuse of non-disclosure agreements (NDAs) to silence victims of harassment and has recommended that the government introduce legislation to ban the use of NDAs in harassment cases. It had also recommended that the FCA collect data on the use of NDAs by regulated firms in cases of nonfinancial misconduct to obtain a clearer picture of the extent of their use in harassment cases in the financial services industry.

FCA RESPONSE

The FCA, which participated in the Committee inquiry by contributing both written and oral evidence, responded to the Committee’s report on 8 March 2024. [7] In its response, the FCA committed to prioritising proposals around tightening expectations on firms to tackle nonfinancial misconduct (such as bullying and sexual harassment) and vowed to consider the Committee’s recommendations on whistleblowing and the use of NDAs.

The FCA also promised to reflect on the Committee’s other suggestions for its D&I proposals and consider how best to engage with boards and senior leadership to improve firm culture.

KEY TAKEAWAYS

The Committee’s report and the FCA response are reminders that D&I and sexual harassment are likely to remain top priorities for the government and regulators, and as such should not be ignored by financial services firms.

While it is not clear how the FCA will action its promise to tighten expectations on firms to tackle nonfinancial misconduct this year, firms should keep a close watch on the progress of any proposals in this space.

Also notable is the Committee’s recommendation for the FCA and PRA to drop their proposals to require firms to implement D&I strategies, collect and report certain diversity data, and set targets, which were viewed by many as potentially onerous and burdensome. The FCA has not committed to dropping these plans, explaining in their response to the Committee report that their “starting point was that what gets measured gets done and transparent, comparable data would benefit firms, employees and the wider economy.” [8]

Accordingly, it remains to be seen whether and how the FCA and PRA will shift their focus to ensuring that boards and senior leadership of firms of all sizes take ownership of improving D&I.

Finally, the Committee’s comments on the misuse of NDAs highlight the continuing importance of this issue, which has been the subject of considerable scrutiny in recent years. Given the passage of the Higher Education (Freedom of Speech) Act 2023 (which prevents higher education institutions from entering into NDAs with staff, students, and others in relation to sexual harassment and other types of bullying or harassment) and the broader proposals and discussions amongst government and regulators around the misuse of NDAs, financial services firms should expect this issue to remain at the forefront and be aware that legislative reform restricting the use of NDAs in relation to sexual harassment may be forthcoming.