Long reads

The Future of Regulation: Fintech's persistent dearth of diversity

Paige McNamee

Paige McNamee

Senior Reporter, Finextra

Fintech has been found to bear a systemic gender diversity problem. This imbalance has been seen to play out severely across venture capital where female founders have received just 1.3% of all VC funding in Europe since 2017. For such a progressive industry, why are these discrepancies persisting, and should regulators do more to improve these statistics?

Sarah Sinclair, co-founder, Change Gap, explains that the context in which fintech emerged – being out of frustration with the traditional financial establishment, coupled with the increased availability and affordability of technologies such as cloud, open banking and other digital innovation, means there has been an unparalleled level and speed of innovation and progression across fintech.

Given that fintech brings together two industries that have been largely male dominated (Financial Services and Technology), means that “it is therefore no surprise that fintech bears a systemic gender diversity problem.”

She posits that the circumstantial speed and evolution of the fintech industry did not allow for diversity to be ‘designed-in’ from the start: “As fintech was an industry borne out of a need to bring about a change that is urgent and already overdue, it is a good thing that it did take off quickly – however, awareness of the system gender diversity issue should be addressed as urgently and strongly as possible, to ensure correction is brought about, and the resulting benefits tracked and celebrated.”

Sinclair warns that this persistence of discrepancy in gender diversity will continue to worsen for as long as there is a lack of quality data that highlights not only the discrepancy levels itself, but also some of the related attributes. “However, just because it is not easy to define useful data to collect and track for this, does not mean that it shouldn’t be done – quite the contrary. We need to start doing this, and encourage efforts globally, to do likewise.”

Sam Donoghue, senior consultant, Climate Transition Practice, P2 Consulting, believes that the gender diversity problem starts at the top (5.6% of CEOs in fintech are women) and that this trickles down the chain of command.

While he argues that regulators can’t solve the problem, “it would go a long way if regulators could mandate fintech companies to disclose their gender diversity statistics and put targets on the gender diversity of boards.”

He refers to the review of gender diversity of FTSE 100 boards led by Lord Davies in 2011 – where a target was set for all boards to be at least 25% female by 2015, which was achieved. “There was a subsequent recommendation that FTSE 350 boards should be a third female by the end of 2020.”

Donoghue also points out that across the banking and technology industries there is a dearth of female candidates.

“Companies and industry associations need to collaborate to encourage more girls in schools to choose scientific, engineering and maths related subjects and they need to raise awareness of the benefits of working in these industries to female candidates. Grass roots work is essential, and it is the responsibility of these industries to ensure this happens.”

Commenting on the issue of diversity more broadly, Rick Lacaille, global head of ESG at State Street, adds that he “would expect an industry that lacks diversity to be concerned about the pernicious effect this will have on quality.” He notes that State Street’s ‘10 Actions against racism’ are designed to be an important contribution to addressing another persistent social ill.

Sinclair offers three key ways that regulators can help, in order to improve the fintech gender diversity problem:

  1. Continue to lead by example by demonstrating their own efforts toward correcting the balance and promoting gender balance improvement strategies and action in their own teams and organisation structures.
  2. Reflect the same policies and implementation thereof, in their initiatives involving all aspects of fintech and regtech. This includes their regulation of financial institutions, ensuring that specific focus is applied appropriately to fintechs as well as traditional firm types. It also applies to the regulatory initiatives and supervision of culture and conduct requirements, as relevant to fintechs.
  3. Finally, transparency is always a key mechanism for highlighting and increasing focus on issues – so the use of data to highlight the position around gender diversity in fintech is an area in which regulators could play a part, either by mandating or incentivisation.

Comments: (0)