Top executives at financial firms could see their pay linked to progress on diversity under measures being discussed by UK regulators.

In a joint paper, the Bank of England, Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) said they wanted to prompt banks, insurers and other firms they regulate to act more quickly to address inequalities.

The regulators pointed to sluggish progress on female representation and signs of progress for ethnic minorities going into reverse, as well as evidence that senior roles were dominated by those from privileged backgrounds.

They said policy options could include using targets for representation, making senior leaders directly accountable for diversity and inclusion, and linking pay to measures of improvement in those areas.

Regulators are also weighing up whether adverse findings in relation to inclusion and diversity could mean a person is not “fit and proper” to hold a senior role.

Sam Woods, deputy governor at the Bank and chief executive of the PRA, said: “While some progress has been made to improve diversity and inclusion in parts of the financial services sector over the last decade, the discussion is still in its early stages, and more needs to be done to speed up progress.”

FCA chief executive Nikhil Rathi said: “We are concerned that lack of diversity and inclusion within firms can weaken the quality of decision-making.”

The paper said: “We believe that targets for representation can be a powerful way of driving change through commitment to shared goals.”

It added that top executives could have a specific responsibility for diversity and inclusion policies to ensure the right “tone from the top”.

“Linking progress on diversity and inclusion to remuneration could be a key tool for driving accountability in firms and incentivise progress,” the paper added.

The regulators said they plan to collect data from firms about their workforce in order to assess progress.

A one-off pilot survey will take place later this year to help develop proposals set out in the paper and test how companies might provide regular updates in the future, they said.

The discussion paper from the regulators will be open until the end of September, with a formal consultation on the plans to be launched in the first quarter of next year.

The paper pointed to figures showing that in 2020, 32% of senior management roles at companies signed up to the government’s Women In Finance charter were held by women – an increase of just one percentage point from 2017.

Meanwhile, the Green Park business leaders index this year showed a fall in the number of black leaders and the “black pipeline” to senior management for FTSE 100 companies – and that fewer than one in 10 management roles in financial services were held by black, Asian or other minority ethnic people.

The regulators also cited a “deep dive” study of eight financial firms, including regulators, which found that 89% of senior roles were held by people from higher socio-economic backgrounds.

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