Diversity & Inclusion has become a key focus of the Central Bank of Ireland (CBI) in recent years. The CBI identified cultural failings within the financial services sector as having contributed to the financial crisis, and were a trigger for the CBI’s Tracker Mortgage Examination. The CBI considers a lack of diversity and inclusion at senior management and board level in organisations to be a leading indicator of elevated behaviour and culture risks.
As part of this increased focus, the CBI undertook a review into behaviour and culture at the five leading Irish retail banks. This review focused primarily on executive leadership and its importance in driving an effective culture, where customer interests are adequately identified, discussed and taken into account (“Tone from the Top”). The outcome of this review was published in July 2018 as the Review into the Behaviour and Culture of the Irish Retail Banks (Culture Report).
In the Culture Report, the CBI found that:
“…the banks have much more work to do in terms of ensuring their organisations are sufficiently diverse and inclusive, particularly at senior level, to prevent group-think, guard against over-confidence, and promote internal challenge. Again, the five banks will be required to deliver action plans that address the issues raised.”
To help organisations achieve this, the Culture Report identified key requirements, actions and recommendations, including institution-specific actions and risk mitigation plans for the banks. Banks were required to respond to the Diversity and Inclusion findings by providing the CBI with a separate action plan to foster increased diversity and inclusion, with tangible expectations and implementation targets with planned annual reviews. The CBI monitors the responses to the risk mitigation programmes closely, and may put further specific requirements in place to facilitate the necessary improvements. The Culture Report was the first step in identifying gaps and establishing clear actions to bridge these gaps, however it is the ongoing progress which is key to the CBI.
In order to lead by example, the CBI publishes its gender pay profile and representation levels. The 2020 report shows that the CBI’s Gender Pay Profile, as at 1 January 2020, is 2.2% in favour of male employees. This is the Central Bank’s third gender pay gap analysis, which sees an overall reduction of 0.5% since the first publication in 2018 and a 0.2% reduction since 2019. There are also significant resources dedicated to D&I on the CBI website, which includes all published speeches addressing D&I and Culture (here).
Internal representation levels are not the only important metrics reported; the CBI reports annually on the demographics of the applications received from firms for CBI approval for certain senior roles in financial firms in Ireland. This is part of its commitment to monitor and report on the level of diversity in the sector, and is an important public recognition of the demographics in this area.
The CBI also adopts a sector specific approach, and in July 2020 published a thematic assessment of Diversity & Inclusion in insurance firms (the “Thematic Assessment”). The findings from the Thematic Assessment are far ranging and indicative of the CBI’s high expectations in this area. The CBI concluded that there was a lack of sufficient progress by the 11 impacted insurance companies on improving D&I and this gave rise to regulatory risks that needed to be addressed. While all of the firms within scope had commenced initiatives to improve D&I, and had policies in place, boards and management were sufficiently ambitious in meaningfully improving D&I in a timely fashion. The CBI found that there was a lack of diversity in the composition of boards and ExCos, and a lack of focus on D&I by those bodies. The Thematic Assessment also identified several cases where there was a D&I strategy in place, but it was difficult to see how the strategy was aligned to the overall company strategic objectives. There is a risk that where D&I strategies are owned by HR departments, with little involvement or oversight by the senior executive team or board, then this will result in a disconnect between the strategy and the operation of the policy. Another concern raised by the CBI was the lack of measuring and tracking of implementation of D&I efforts. This is an area the CBI are looking to lead by example, by the examination and the publication of its own diversity metrics. The CBI has issued risk mitigation programmes to the affected insurance companies, requiring them to address the issues identified.
The Thematic Assessment emphasises the importance the CBI attaches to the need for improving D&I in regulated firms in Ireland, an issue it highlighted in its Culture Report. The Report also notes that it is considering a review of D&I in other regulated financial services sectors outside of banking and insurance and regulated firms should consider the findings in the Culture Report and the Thematic Assessment and consider how to embed these into their policies and procedures.
D&I is an important consideration for leadership in the financial services sector, and it is clear that the regulator will continue to be active in implementing and reviewing organisations policies, procedures, and practices. For clients in the insurance sector, the Thematic Assessment requires close reading, and consideration of the recommended actions.