The Sexism in the City report highlights key issues affecting women in financial services and sets out a number of recommendations to address them.

On 8 March 2024, the House of Commons Treasury Committee published its report from the Sexism in the City inquiry, which sought to explore progress in four key areas affecting women in financial services since the Committee’s Women in Finance report was published in 2018. Overall, the report finds that “not much” has changed in the past five years, with many of the barriers identified in 2018 remaining in place. It ascribes the limited progress largely to a lack of cultural change in the sector.

The report sets out a number of recommendations for the government and the regulators to take forward. It also shines an even greater spotlight on this area and will likely strengthen the regulators’ focus on culture, diversity and inclusion, and non-financial misconduct. As such, firms should expect more regulatory scrutiny of how they are addressing the issues raised by the report and will want to be able to evidence their progress in relation to these.

Diversity and Inclusion

The report identifies that diversity and inclusion continues to be treated as a “tick box” exercise by many firms rather than a core business priority, and notes that the representation of women within firms often decreases in line with their seniority level. The Committee considers that responsibility for tackling these issues and driving cultural change must sit with the senior leadership and boards of firms. It also considers that investors have an important role to play in holding firms to account.

Interestingly, the Committee is of the view that a lack of diversity is a problem that the market itself should be able to solve without extensive regulatory intervention. Consequently, the report suggests that the FCA and PRA should drop their plans for extensive diversity data reporting and target setting by larger financial services firms, as consulted on last year (see this Latham Client Alert).

Barriers Facing Women

The report identifies some of the barriers facing women, including the impact of maternity, the lack of flexible working options (particularly with the needs of childcare in mind), and the wider culture of the industry. However, it also notes the increased use of paternity leave and shared parental leave. It recommends that the government and regulators encourage firms to equalise their offer of parental leave, and to be transparent about their maternity and parental leave policies by publishing them on their company websites. Observing the positive impact of flexible working patterns for women with caring responsibilities, the report also recommends that regulators should encourage firms to undertake equality impact assessments on their flexible working policies. The report cautions that a push back towards in-office working could risk losing the benefits gained by introducing more flexible working arrangements.

Pay

The report highlights that the financial services sector has the largest gender pay gap of any sector in the UK economy and recognises that, while pay gap reporting has increased transparency, firms have not been incentivised to reduce this gap. To address this, the report recommends reducing the size threshold for gender pay gap reporting from 250+ to 50+ employees for firms in the financial services sector, and that businesses with wide gender pay gaps should be required to explain the disparity and publish an action plan.

The report notes that a lack of pay transparency, specifically at recruitment stage, has perpetuated the gender pay gap, and recommends that the government introduce legislation that requires firms to include salary band information on job advertisements. It also recommends banning prospective employers from asking for an applicant’s salary history. Further, the report finds that the gender pay gap is often larger when looking at bonuses, and recommends that the regulators monitor the impact of the removal of the bankers’ bonus cap on gender pay inequality.

Sexual Harassment

The report suggests that firms should adopt a zero-tolerance approach towards sexual harassment and bullying in the workplace. It states that senior leadership and boards need to take ownership of this issue and ensure that processes for handling complaints lead to thorough investigations, protect those making the allegations, and result in appropriate consequences for those found to have perpetrated abuse or harassment. The report also highlights the role that men can play as allies and role models.

The report explains that the Worker Protection Act will impose a new duty on firms to prevent sexual harassment, and that the government will monitor closely its effectiveness at reducing cases of sexual harassment in financial services. The government also asks the FCA to clarify how it will work with the Equality and Human Rights Commission to enforce the Act.

The report emphasises the work the FCA has been doing on non-financial misconduct and its proposed new guidance for firms to help them tackle this issue. While the inquiry heard evidence that these proposals do not go far enough, the Committee acknowledges that the FCA is reasonably constrained in what it can do within its powers as a financial services regulator. The report also highlights the FCA’s efforts to uncover the scale of the problem by writing to numerous wholesale firms to request data on how they have been tackling non-financial misconduct.

Finally, the report comments on the prevalent misuse of non-disclosure agreements (NDAs) and recommends that legislation should be introduced to ban the use of NDAs in sexual harassment cases. It also recommends that the FCA collect data on the use of NDAs in cases of non-financial misconduct, and launch an awareness campaign to publicise the availability of its whistleblowing line and clarify when it can be used (including making clear it can be used when the individual has signed an NDA).

FCA’s Response

In response to the report, the FCA released a statement in which it announced that it will prioritise its proposals on non-financial misconduct and consider the Committee’s recommendations on whistleblowing and the use of NDAs.

While the FCA states that it welcomes the Committee’s feedback on its diversity and inclusion reporting proposals, it also asserts that “what gets measured gets done”, suggesting it still finds merit in introducing reporting requirements. The Policy Statement is due out in the second half of this year, so it will be interesting to see whether the regulators stick with their original proposals.

In light of the report, the FCA also plans to consider how it is engaging with boards and other senior leadership on their firm’s culture. Therefore, firms should be prepared to receive more communications from the regulator on this topic.

This post was prepared with the assistance of Christine Tun in the London office of Latham & Watkins.