The Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and Bank of England (BoE) have come together to explore how they can improve diversity and inclusion in the financial services sector.
In a discussion paper the regulators outline several suggestions including regular reporting, linking renumeration to D&I metrics, internal audits, and considering the approach to non-financial misconduct.
Nikhil Rathi, chief executive of the FCA, said: "We are concerned that lack of diversity and inclusion within firms can weaken the quality of decision-making.
We look forward to an open discussion on how we should use our powers to further diversity and inclusion within financial services."
"We look forward to an open discussion on how we should use our powers to further diversity and inclusion within financial services, to the mutual benefit of firms and their customers."
To inform the "policy development", the regulators will issue a voluntary pilot data survey this autumn. The hope is that data collections will allow the regulators to monitor progress over time, explore trends and "enable benchmarking".
The paper said benchmarks could "raise standards across the industry" which would "support competition".
While the pilot data will be based on what the companies have available, future collections will look at ethnicity data in accordance with UK census categories.
Among the suggestions for encouraging change and driving accountability is linking D&I to personal objectives and renumeration of senior management.
The HM Treasury Women in Finance Charter review, published in March 2021, found only 5% of signatories believe such an approach would not be effective.
The regulators are also exploring "whether adverse findings in relation to individuals' conduct with respect to diversity and inclusion issues" could impact their regulatory approval to carry out a certified function.
Among the questions are how any changes should be tailored to specific firms and the regulators explicitly call out that some smaller firms may need exemptions to new rules.
The discussion paper is open until 30 September 2021. The feedback will be used to create detailed proposals and a joint consultation is expected in Q1 2022.
Sir Jon Cunliffe, deputy Governor for Financial Stability at the BoE, said: "Diversity and inclusion is beneficial for financial stability. Groupthink and overconfidence are often at the root of financial crises.
"Enabling a diversity of thought and allowing for an array of perspectives to coexist supports a resilient, safe and effective financial system."
First published by our sister title Investment Week