Report: Fintech gender diversity and the unshifting pay chasm

By Rebekah Tunstead | 21 May 2019

Over the past few years industries and governments have prioritized diversity and rectifying gender-related pay disparities, but a recent bobsguide survey suggests much is to be done within the fintech sector.

The survey – carried out in March this year - revealed perceptions among participants of a gap in the ratio of males to females in the workplace, a disparity in salary between genders, and failed attempts by firms to encourage diversity.

50% of 140 respondents said their company did not actively encourage a gender balance and 42% pointed to a disparity in salary between genders. 30% said the disparity in salary could be more than 30%. As many as 79% said their company has no gender diversity policy and men outnumber women by a 60:40 ratio.

The imbalance may be bred into the market right from the offing: a February report published by the British Business Bank found that for every £1 of venture capital investment poured into UK startups, less than 1p goes to firms led by women. It could take 25 years for all-female teams to reach just 10% of all deals, according to the report.

This lack of investment in women-led business perpetuates the current gender imbalance in fintech, according to Deniz Johnson, co-organizer of the Boston fintech community.

“The venture capital environment is actually where you see the biggest gender gap, and that results in very little investment in female entrepreneurs. So, it becomes a vicious cycle,” she says. “If the VC have more women in their decision-making process, like their partners, they tend to invest more in women-owned businesses, that leads to more female founders, and more start-ups with female co-founders.”

The results of the bobsguide survey reflect the wider financial services community, where gender inequalities are even more pronounced. Megan Butler director of supervision for investment, wholesale and specialist at the UK’s Financial Conduct Authority (FCA), stated in March last year that the regulator was aware of financial services firms which had a 50% gender salary disparity and 80% for bonuses.

“On current trends, financial services globally will not reach 50% female executive committee representation until around 2107,” said Butler.

And it’s not just the private sector. In a speech earlier this month, the Bank of England (BoE)’s deputy governor and chief operating officer Joanna Place highlighted that the mean gender pay gap at the BoE currently sits at 20.2% in favor of males, albeit down from 21% in 2017. In November, the FCA stated its mean gender pay gap was 18.5% with a mean bonus gender gap was 20.6%. The Old Lady aims to rectify things however, with Place discussing a plan to have 35% of senior roles filled by women at the central bank by 2020.

‘Non financial’ misconduct

Last year, the FCA received 64 reports of non-financial misconduct – which includes discrimination and sexual harassment - up from 20 year on year. As the regulator’s awareness of such misconducts are growing, so too are its ambitions to penalize those perpetrators.

“It should be clear by now that the FCA’s interest in diversity is not merely a matter of social justice, but a core part of how we assess culture in a firm,” said Christopher Woolard, the FCA’s executive director of strategy and competition at a conference in December.

Woolard went on to note that where the regulator had found an individual not to be fit and proper on the basis of their ‘non-financial’ conduct, “they were unable to take up or continue in their role.”

“And the way firms handle non-financial misconduct, including allegations of sexual misconduct, is potentially relevant to our assessment of that firm, in the same way that their handling of insider dealing, market manipulation or any other misconduct is,” said Woolard.

For William Hallatt, head of Herbert Smith Freehill’s regulatory practice in Asia, the financial services industry should be preparing for a bigger push by regulators towards better diversity and inclusion.

“We are moving to a new phase where it isn’t just about principles being applied to what you do, but it is actually about your day-to-day conduct being assessed almost on a real-time basis – particularly the day-to-day conduct of your managers, and how they instill the right culture in a firm. We started with rules-based regulation, we moved to principles-based regulation, and I think we are now moving to cultural accountability within the confines of regulation,” says Hallatt.

Greater individual accountability by senior managers in being pushed by regulators globally. In the UK, the Senior Managers and Certification Regime (SMCR) will be rolled out to cover solo-regulated firms in December; in Australia the Banking Executive Accountability Regime (BEAR) will come into force for all authorized deposit-taking institutions (ADIs) in July; in 2018 the Monetary Authority of Singapore proposed guidelines to strengthen the individual accountability of senior managers; and in Hong Kong the Securities and Futures Commission introduced the Manager-in-Charge (MIC) regime in October 2017.

“It is going to be interesting to look at the first enforcement cases over the next few years that come out of the new and impending regulations in the UK, Hong Kong, Singapore and Australia, to see the reaction to that regulatory shift. For some institutions, it will be those enforcement cases that finally force them to shift too.”

In the UK, SMCR was brought into the banking sector by the FCA in 2016 to “strengthen individual accountability in financial services.” The regulation - which has also been introduced into the insurance sector – with the FCA saying it would “continue to impress on senior management the importance of diversity in their teams, and we may ask firms directly about gender diversity policies.” On May 19, the FT reported that the FCA was investigating 27 firms for culture and governance failings.

The regulator also pointed to other UK and EU initiatives that include diversity obligations. Under the Capital Requirements Directive (CRD IV) and the second Markets in Financial Instruments Directive (Mifid II) guidelines by the European Banking Authority (EBA) and European Supervision Market Authority (Esma) which came into force on June 30, 2018, firms are required to ensure that the composition of their management bodies reflect a broad range of experiences. This is ensured through the enforcement of diversity policies during the recruitment process.

A role for fintech

In April last year, the Financial Stability Board published a toolkit to assist firms and supervisors in strengthening governance frameworks and mitigating misconduct.

Part of the toolkit is the identification of cultural drivers of misconduct through the review of information and use of multidisciplinary techniques. This involves firms collecting data that they believe are in conflict with a cultural vision and “other information (from various sources and perspectives) that provide insight on behaviours that could lead to misconduct.”

While firms may be a long way from the FSB’s data assessment standards, there is an opportunity for fintechs to lend assistance, according to Herbert Smith Freehill’s Hallatt.

“The regulators are not making every firm the same – and that is very important to note. Clearly every firm has a different culture that is important for how they operate as businesses. The regulators aren’t saying that it is a 'one size fits all', but that also makes this process very difficult. How do you benchmark when every institution is so different? You can come up with a number of factors, but even when you collect that data, different people in different firms will look at that data in a different way– and how any issues are addressed may be radically different too,” says Hallatt.

“Building systems that will collate the right sort of data and help firms decide how to filter and use and measure that data would be invaluable,” he says. “Anyone who has a good idea, or in fact any idea of how to do some of that, would be welcome to have discussions with the industry.”

The benefits of diversity

On May 4, Sharon Donnery, deputy governor of the Central Bank of Ireland told a conference of the positive impact that greater diversity can have on firms.

“Research shows gender diversity can affect the process and quality of decision making. It can guard against groupthink by bringing a heterogeneity of values, beliefs, and attitudes. Other studies suggest that a higher female presence in top management could help develop better types of leadership behavior across organizations – namely –people development, setting expectations and rewards, providing role models, and participative decision-making. Furthermore, reducing gender differences between management and staff, can enhance worker productivity,” said Donnery.

Despite major gender equality movements making headlines, perceptions still need to be managed, says Charu Sharma, chief executive officer of Next Play.

“Because there have been a lot of movements recently like #metoo, people think gender equality is more prevalent than it really is. Even today, I see firsthand that when women complain about discrimination, or bias, or even inappropriate behavior, I hear very smart and perceptive men saying things like, ‘oh, well men are wired like that,’” says Sharma.

For Sharma, change starts from the top.

“Who is making decisions, who is setting the tone, who is driving the culture? We need more women role models, which is not only putting women in leadership positions, but also telling more stories so that woman can feel, ‘I could be them one day,’” says Sharma.

“Having that confidence is extremely important, generally what I see happening is that women feel invisible. They don’t feel like they are heard, and so when there is a misconduct complaint, often we justify it, and we normalize it,” she says.

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