Out-Law News | 28 Jun 2019 | 4:32 pm | 2 min. read
Megan Butler, executive director of supervision at the Financial Conduct Authority (FCA), told an Investment Association event that there would ultimately be a "hard regulatory edge" around the approval of appointments under the senior managers regime (SMR).
"There will come a point when if we don't see diverse boards then we will be turning down the next white male that comes in front of us because we believe that is not likely to be demonstrating diversity of thought," said Butler, in comments carried by Ignites Europe (registration required).
Butler's comments "go significantly beyond the FCA's previous statements on diversity and inclusion, but do fit with their general direction of travel", according to financial services employment law expert Jon Fisher of Pinsent Masons, the law firm behind Out-Law.
The FCA wants to drive cultural change in financial services firms, and in the past 12 months it has consistently made it clear that it sees diverse senior management teams as crucial to the achievement of this goal.
"The FCA wants to drive cultural change in financial services firms, and in the past 12 months it has consistently made it clear that it sees diverse senior management teams as crucial to the achievement of this goal," he said.
"This does go further than what we have heard before, which to date has largely centred on softer measures to promote diversity. Regulatory steps have been largely confined to tackling sexual misconduct. However, the FCA has highlighted that progress in promoting women has been too slow, with only 15% of directors and 6.5% of CEOs within its regulated population being female, so it clearly feels that more interventionist action is required," he said.
Butler has said previously that firms should be using the SMR and related certification regime to hold individuals to account for behaviours such as sexual harassment. Firms are required to conduct an annual 'fit and proper' assessment of certified staff while senior managers, to whom firms must assign responsibility for certain areas of the business, must be approved by the FCA.
The FCA has pressed the need for cultural change at financial firms in a number of consultations, thematic reviews and discussion papers since its inception in 2014. The SMCR was introduced to deposit-taking banks and building societies on 7 March 2016 and to insurers on 10 December 2018, and will be extended to other regulated firms later this year.
Fisher said that while firms would take note of Butler's comments, legally those seeking to appoint women into senior roles were in a "tricky position", as they are only able to explicitly favour women for a role in "very limited circumstances".
"That is why their efforts largely focus on removing obstacles which may make it more difficult for women to apply for senior roles, so that they swell the pool of female candidates – at the application stage the decision on who to offer the job to must be based on merit," he said. "It will be interesting to see how the FCA square any regulatory action they take in this area with firms' duties under the Equality Act not to discriminate on grounds of gender."
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