A joint letter to the financial regulators

‍Dear Nikhil Rathi (CEO, Financial Conduct Authority) and Sam Woods (CEO, Prudential Regulation Authority),

We are writing as a collective of organisations committed to improving social mobility. As regulators, you have a duty to ensure financial markets function well for businesses and consumers, and – since 2023 – to facilitate the competitiveness and growth of the UK economy. It is our shared belief that, to achieve your statutory objectives, we must make full use of the talent available to us.

This time last year, we authored a joint statement in response to your diversity and inclusion consultation. We welcomed the positive step of listing socio-economic background as a demographic characteristic and the proposed mandatory reporting of certain workforce diversity characteristics. However, we strongly urged you to include socio-economic background data alongside the other mandatory characteristics, rather than designating it as voluntary. We collectively believe that this data is essential for not only addressing systemic inequities in the financial services sector, but also driving growth in the UK economy.

Your consultation acknowledged that almost 9 in 10 senior roles in financial services are held by people from higher socio-economic backgrounds, and employees from lower socio-economic backgrounds take 25% longer to progress, despite no evidence of a difference in performance. They are also paid £17,500 less per year on average than their peers from higher socio-economic backgrounds, which is the largest pay gap for any sector – almost four times higher than the technology sector, with whom the financial services sector is often competing for talent.¹

Such inequality is not just an ethical concern, but an economic imperative. A recent report, launched by the Employment Minister, Demos and the Co-op, suggests that improving social mobility across UK workplaces could boost annual GDP by £19 billion, generating around £6.8 billion in yearly tax revenues and boosting profits by over £1.8bn a year.²

Growth is at the heart of the new Government’s agenda, and it is committed to 'shattering class ceilings', recognising the strong link between opportunity and productivity. In fact, Labour's Financing Growth Review explicitly supports guidance on diversity and inclusion, with a focus on expanding socio-economic diversity, stating:

“A Labour government will support the first of its kind guidance on diversity and inclusion for financial services led by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), and consider opportunities for expanding the focus to include socioeconomic diversity.”

Furthermore, their plans to enact the Socio-Economic Duty clause in the Equality Act 2010 will require public bodies to consider the impact of their decisions on socio-economic inequalities. As regulators committed to the Public Sector Equality Duty, you are well-positioned to lead this change.

We know you are steadfast in your commitment to consumer outcomes. We support your strong reference to the dangers of groupthink on the safety and soundness of decision-making. The Chancellor made an important statement at Mansion House about the need for more responsible and informed risk-taking in the sector, for which avoiding groupthink is essential. When it comes to consumer outcomes and non-financial misconduct, protecting the sector against the risk of poor decision-making is vital. While it is equally important, in particular, to gather data on gender and ethnicity, our evidence based on 200k employees across UK financial services demonstrates that those from a higher socio-economic background progress to senior management positions more often and more quickly.

Cognitive diversity leads to better consumer outcomes, which is crucial for implementing the Consumer Duty rules and mitigating groupthink – a risk identified by both regulators. These risks will not be identifiable without gathering the proposed mandatory demographic characteristics as well as socio-economic background data.

Contrary to concerns about data collection costs, a third of the financial services sector is already reporting this data anonymously via Progress Together, with average employee response rates increasing from 49% to 58% this year. The Solicitors Regulation Authority has mandated socio-economic data within its diversity and inclusion reporting for nearly a decade, with the most recent Social Mobility Employer Index showing that the majority of top performers are law firms. The legal sector continues to see significant growth – proving that such regulation is a facilitator, not a barrier, to economic development.

The stakes are high. The Financial Services Skills Commission predicts 260,000 highly skilled professionals may leave the sector in the next decade – a quarter of the current workforce.³ At a time when only 2 in 5 adults have confidence in the financial services industry, a more diverse sector could better understand and serve customer needs.⁴

Without clear regulatory intent, the sector will continue to fall behind. We urge you to seize this opportunity and make socio-economic background a mandatory reporting requirement. This is not just about moral imperative, but also about creating a more productive, innovative, and representative financial services sector that can better serve the diverse needs of UK consumers and drive economic growth.

We stand ready to support you in this critical step towards a more equitable and prosperous financial sector.

Signed,

Nick Bent
Chief Executive Officer
upReach

Sophie Hulm
Chief Executive Officer
Progress Together

Sarah Atkinson
Chief Executive Officer
The Social Mobility Foundation

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¹ Friedman, S and Laurison, D (2020). The Class Ceiling: Why it Pays to be Privileged. Bristol: Policy Press. p. 53-54.

² The Co-operative Group and Demos (2024). The Opportunity Effect: How Social Mobility Can Help Drive Business and the Economy Forward, p. 6 (Accessed 25th November 2024).

³ Financial Services Skills Commission, PwC & EY (2023). People and Technology: How Skills Can Unlock Value for Financial Services, p.7. (Accessed 28th November 2024).

⁴ Financial Conduct Authority (2022). Financial Lives 2022: Key findings from the FCA's Financial Lives May 2022 Survey, p. 220. (Accessed 28th November 2024).

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Read the Financial Times' article about the letter here.