In consultation papers published by the FCA and PRA today, proposals have been set out to boost diversity and inclusion in financial services firms. The aim of these proposals is to support healthy work cultures, reduce “groupthink” and unlock talent, as well as to enhance the safety and soundness of firms and improve understanding of consumer needs. The regulators say that increased diversity and inclusion in financial services firms can deliver better internal governance, decision making and risk management.
While work led by the Government, and voluntary initiatives such as the Treasury’s Women in Finance Charter have made progress, the FCA and PRA consider that there is a key role for regulators to play. With this in mind and following the broad support for their 2021 Discussion Paper, the FCA and PRA brought forward their most recent proposals.
At the heart of the proposals is flexibility. Flexible, proportionate minimum standards have been proposed to raise the bar, with more requirements being placed on larger firms. The regulators have also stressed that each firm is different and must find its own solutions. The requirements on larger firms will include setting targets, regulatory reporting and disclosure, with requirements for all firm including:
- The development of a diversity and inclusion strategy setting out how the firm will meet their objectives and goals;
- Collecting, reporting and disclosing data against certain characteristics;
- Setting targets to address under-representation.
Also included in the proposals are the new rules and guidance surrounding non-financial misconduct, such as bullying and sexual harassment. The guidance makes clear that these behaviours pose risks to healthy firm culture and helps firms to take decisive and appropriate action against employees for such behaviour. The proposals would make changes to the Glossary, SYSC, COCON, COND and FIT, including a new chapter in SYSC on a D&I strategy and the setting of targets.
Questions in the proposals include the regulators seeking information from firms on questions such as:
- whether the proportionality frameworks proposed are appropriate;
- whether there is a divergence between PRA’s and FCA’s proposals that could cause issues for firms;
- whether firms agree with the proposals to expand the coverage of non-financial misconduct within the rules;
- the balance of information required from certain types of firms under the proposed reporting obligations;
- views on proposed targets;
- thoughts on whether firms agree with the disclosure proposals and that it should be mandatory for some demographic characteristics and voluntary for others
The consultation is open until 18 December 2023, with the regulators expecting to make the final rules in 2024.