This article was first published by International Banker on April 11, 2024.

#MeToo is still moving across the pond. On March 8, 2024, the House of Commons Treasury Committee published a report entitled “Sexism in the City” (referenced as “Report” in this article), which found that the financial-services sector had made little progress in removing the systemic barriers faced by women in the workplace or the prevalence of sexual harassment. The Report has called on the government, regulators and financial firms to confront the issues contributing to gender inequality. It came less than a month after the Financial Conduct Authority (FCA) sent a series of information requests to insurance companies related to sexual harassment and other non-financial misconduct.

The Treasury Committee’s Report and the FCA’s requests are likely precursors to legislation, enforcement and more stringent supervision. Financial -services companies—including both those based in the United Kingdom and those in the United States with a significant UK presence—should take note of these developments and assess whether enhancements to their policies and practices are warranted.

Background and key findings

Five years ago, the Treasury Committee launched an inquiry into women in finance. In 2018, the Committee issued a report identifying a range of barriers faced by women in financial services, including sexual harassment, bullying and pregnancy discrimination, while proposing recommendations to mitigate those barriers. To determine whether progress has been made, the Committee launched its “Sexism in the City” inquiry in July 2023. The inquiry revealed a disappointing lack of progress on the various challenges experienced by women in financial services and a lack of cultural change in the sector.

Although its Report acknowledged “incremental improvements” for women working in financial services, such as the proportion of women holding senior roles, the Treasury Committee found that the following challenges persist:

• Gender pay gap: The financial-services sector has the largest gender pay gap of any of the UK economy’s sectors. As of 2022-23, the average pay gap within financial services was 23.7 percent, compared to 11.7 percent in all other industries. Progress since the start of gender pay-gap reporting in 2017 has also been slow, with the gap reducing by only 1.7 percent over six years for financial-services firms. On this trajectory, it will take another 70 years for the gender pay gap to close in the sector.
• Prevalence of sexual harassment: Sexual harassment and bullying remain “shocking[ly]” prevalent, and firms continue to handle allegations of such behaviours poorly. Citing data collected by the not-for-profit organisation Speak Out Revolution, the advocacy group Can’t Buy My Silence informed the Treasury Committee that “45% of workers working in the financial services industry have encountered sexual harassment in the workplace”. Forms of sexual harassment ranged from inappropriate comments and being excluded from meetings to criminal harassment, assault and rape.
• Misuse of nondisclosure agreements: Misuse of nondisclosure agreements (NDAs) to attempt to “cover up” abuse allegations has been widespread. A roundtable conducted by the Treasury Committee revealed that NDAs had the damaging effect of silencing sexual-harassment victims while protecting the perpetrators and undermining incentives for firms to take action to prevent sexual harassment.
• Culture: Firms still treat diversity and inclusion as “tick box” exercises instead of core business priorities. Many described the cultures in financial-services firms as still “old boys’ clubs”. Several witnesses explained how existing initiatives on diversity and inclusion often aimed to change women to fit the culture better rather than change the culture to fit women better.

Recommendations

The Report has made numerous recommendations to address sexual harassment, gender-based discrimination and bullying in the financial-services sector—which companies would be wise to heed now:

• Boards and senior leadership: The UK’s Prudential Regulation Authority (PRA) and FCA should ensure that firms’ boards and senior leadership take greater responsibility for improving diversity and inclusion instead of zeroing in on extensive data reporting and target setting.
• Firms’ policies: Firms need to embed zero-tolerance cultures towards harassment and bullying in their workplaces. They should ensure robust processes are in place to investigate harassment allegations, with the perpetrators of abuse rather than their victims suffering negative consequences. Additionally, the government and regulators should encourage all firms to equalise parental leave for men and women and be transparent about their maternity- and parental-leave policies, including when advertising available roles.
• Pay transparency: As noted by the previous Treasury Committee, the government should take action to encourage greater pay transparency, including by amending pay-gap reporting guidance so that partners’ remuneration is included. Additionally, the employer-size threshold for pay-gap reporting should be reduced from 250 to 50 employees—at least for firms in financial services, given the extent of the problem in this sector.
• NDAs: The government must tackle the misuse of NDAs and introduce legislation to ban their use in harassment cases. It must be clear that nothing in an NDA can prevent someone from reporting misconduct to the FCA or reporting a crime to the police.
• Enhancing flagship initiatives: Two government flagship initiatives—the gender pay-gap reporting regulations, introduced in 2017, and HM Treasury’s Women in Finance Charter, also launched in 2017—have successfully increased transparency and driven conversations but have not brought about the necessary extent of change. The Treasury Committee has recommended various enhancements to both initiatives, such as extending the focus of the Charter beyond the top level of senior management and requiring firms with pay gaps above a certain level to produce action plans on how they will reduce them.

Next steps

The Report has urged the government and regulators to implement changes that will prevent and address sexual harassment, gender-based discrimination and bullying in the financial-services sector. The FCA has confirmed that it will “prioritise proposals that tighten expectations on firms to tackle misconduct such as bullying and sexual harassment” this year and will consider the Treasury Committee’s recommendations on whistleblowing and NDA use. The FCA has also already issued two statutory requests for information to wholesale banks and insurers requiring statistics regarding instances of non-financial misconduct, which it will use to inform its approach to supervision on this issue.

What should companies do now?

As a first step, firms should review their existing policies and procedures to consider whether their whistleblowing procedures and NDA use should be revised. Firms should also review their practices to ensure they have robust processes for investigating workplace misconduct and taking appropriate corrective action when appropriate.

Whilst reviewing and enhancing policies and procedures is the first step, effective implementation is critical. Firms should routinely include non-financial misconduct as a component of their training programmes, either as a stand-alone module or as part of regular education on their codes of conduct and staff handbooks. They should also ensure employees know how to report misconduct.

Further, the Report has emphasised that boards and senior leadership of firms must take greater responsibility for improving diversity and inclusion. The board and management should be regularly apprised of issues related to sexual harassment, discrimination and retaliation in the workforce and demonstrate, through both actions and words, that a firm’s policies will be enforced and non-financial misconduct will not be tolerated.