UK financial regulators, the FCA (Financial Conduct Authority) and the PRA (Prudential Regulation Authority) are consulting on proposals to “boost diversity and inclusion to support healthy work cultures, reduce groupthink and unlock talent.”
The regulators say the proposed measures are also aimed at enhancing the safety and soundness of firms and improving understanding of diverse consumer needs. “Increased diversity and inclusion in regulated financial services firms can deliver better internal governance, decision making and risk management,” they said in a joint statement.
The proposals include new rules and guidance around dealing with misconduct such as bullying and sexual harassment and how this poses a risk to good work culture within firms.
FCA Chief Executive Nikhil Rathi said: “For UK financial services to be competitive and for the companies in it to be well run with healthy work environments, it’s vital they attract, retain and promote the best talent. The data suggests this isn’t happening. Our proposals will encourage the largest firms to put in place plans and report against their delivery.
“UK financial services has long been a magnet for best-in-class talent globally. Increasing levels of diversity within firms can help attract and unlock talent, supporting the sector’s international competitiveness.
“We have taken a lead among regulators in taking a clear stance that non-financial misconduct, such as sexual harassment, is misconduct for regulatory purposes. We’re strengthening our expectations on how the firms we regulate consider such misconduct when deciding whether someone is fit and proper to work within the industry.’
PRA Chief Executive Sam Woods said: “Diversity and inclusion play an important role in guarding against groupthink within firms. Firms in which a broad range of perspectives is welcomed and encouraged will manage their risks better, advancing the PRA’s objective of safety and soundness. Stronger diversity and inclusiveness should also make firms more competitive by enabling them to attract a wider pool of talent. We are tabling proposals today which we think will advance our objectives, alongside existing core parts of our regime such as capital and liquidity requirements, and we welcome views on them from all stakeholders.”
The proposals hope to set flexible, proportionate minimum standards to raise the bar, placing more requirements on larger firms. They include requirements to:
- Develop a diversity and inclusion strategy setting out how the firm will meet their objectives and goals.
- Collect, report and disclose data against certain characteristics.
- Set targets to address under-representation.
Flexibility is a key focus of the proposed guidance, and each firm will be required to create their own bespoke solutions. Most of the above requirements, including setting targets, regulatory reporting and disclosure, would only apply only to the largest firms.
The proposed rules aim to see increased diversity and inclusion in firms translate into better internal governance, decision making and risk management. The consultation is open until 18 December 2023. Final rules are due to be published 2024.
