As part of the regulator’s diversity drive, it has urged firms to review pay data across all protected characteristics and to “act swiftly to address any disparities”.

In the letter sent yesterday, the regulator that increasing diversity and fostering an inclusive environment where every member of staff is valued for their contributions, was a key element of a healthy work culture.

It said that whilst it recognises the steps many firms have already taken to embed diversity and inclusion, but added that there is still much more work that needs to be done.

Last month the FCA launched a consultation on proposals to improve transparency on the diversity of company boards and their executive management teams.

The FCA has proposed changes to its listing rules to require listed companies to publish an annual ‘comply or explain’ statement on whether they have achieved targets for gender and ethnic minority representation on the boards.

The targets the FCA has proposed are that at least 40% of the board should be women, at least one of the senior board position should be a woman, and that at least one member of the board should be from a non-white ethnic minority background.

The FCA has also proposed that the statement should include data on the make-up of firms’ board and more senior level of executive management in terms of gender and ethnicity.

The regulator also proposed changes to its disclosure and transparency rules to require companies to ensure any existing disclosure on diversity policies addresses key board committees and also considers broader aspects of diversity. This could include, for example, considerations of ethnicity, sexual orientation, disability, lower socio-economic background and other diversity characteristics.

The FCA said its listing rule diversity targets will not be mandatory and therefore it is not setting ‘quotas’, but “providing a positive benchmark for issuers to report against”.

The regulator aims to make changes to diversity rules by the end of the year.

The FCA and other UK financial services regulators have previously said they may set diversity targets in future for regulated firms.

In a joint Discussion Paper published last month - DP21/2: Diversity and inclusion in the financial sector - working together to drive change - the FCA and other regulators said diversity and inclusion in financial services needed to improve. 

The regulators, the FCA, PRA and Bank of England, are concerned that women are under-represented in senior roles in financial services and there are concerns that the situation for ethnic minorities is “going into reverse.”

The 2021 Women in Finance Charter Annual Review found that in 2020 there was, on average, only 32% female representation in senior management among charter participants, an increase of less than 1 percentage point year on year from 2017.

In addition, early findings from the Green Park Business Leaders Index (2021) show a decline in the number of black leaders and the ‘black pipeline’ to senior management for FTSE 100 companies. Fewer than 1 in 10 management roles in financial services are held by black, Asian or other minority ethnic people, the FCA said.

There is also limited progress in social mobility. A study of 8 financial firms (including regulators) found that 89% of senior roles were held by people from higher socio-economic backgrounds.