RegSol Blog

Diversity and Inclusion: CBI's recent Hot Topic

April 2019

The past number of months have seen a multitude of events and publications through which the Central Bank of Ireland has endeavoured to highlight its approach to diversity and inclusion in the financial services sector. These include the following speeches:

The Central Bank also publishes two reports in this area:

Report on demographics of applicants via the Fitness & Probity regime
Behaviour and Culture in Irish Retail Banks report
What is the main message coming from these events and publications?

On the report on demographics of applicants it was noted “Small improvements in the levels of diversity of senior appointments is welcomed, but much more progress is needed across the financial system”. Somewhat unsurprising given the statistics show:

'approximately four out of five applications for board positions were for men, marginally down on 2017 (82%); and this remained even more imbalanced for the most important Chair of the Board and Chief Executive positions, 84% of which were for men; and
the analysis continues to show a pronounced gender imbalance at board level and in revenue generating roles.'
A lack of gender diversity at senior levels in regulated firms is noted to be a cause for concern in the culture, risk management and decision-making of firms.

Increasing the 'diversity of experience, thought, background and attributes at senior levels' is expressed as being required to:

·        'reduce the likelihood of groupthink;

·        reduce overconfidence and improve decision-making;

·        enhance culture and improve risk management; and

·        increase the level of internal challenge in financial services firms and reduce excessive resistance to external challenge.'

Derville Rowland in her address specifically references studies which have shown greater female representation on boards reduces risk of fraud and balanced teams performed better than single-gender dominated teams.

The Central Bank’s own record is clear in this regard - women make up 50% of the total workforce, 1/3 of the board, nearly 40% of the executive committee and over 40% of the leadership team. Voluntary publication of a Gender Pay Gap Report also highlights a 2.7% difference in favour of men at 1 January 2018, which is far below national and European averages while still acknowledging there's a way to go. (It is interesting to note that the Data Protection Commission also boasts a 50% split between men and women at senior management level.)

What does this mean for regulated entities or applicants for CBI authorisation?

There is a clear expectation that we continue to see greater representation of groups currently under-represented in the financial services sector and particularly more women in senior positions.

The Central Bank is certainly looking closer at the balance of boards in applicant firms and on occasion we have seen explicit requests to consider an additional or alternative candidate for high-level roles to better the balance, particularly from a gender standpoint. As regards existing firms, other than banks, its not clear how the Central Bank will seek to improve sector wide imbalances. It is, however, highly recommended that where positions come up for renewal, particularly at Director level, a full assessment be undertaken as to the level of diversity on the board and while gender is a significant factor int he context of the current statistics, lots of other factors should feed into this process as well including skillsets, education/experience, etc.