United Kingdom regulators, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), have proposed measures to boost diversity and inclusion in financial services. In consultation papers published this month, the financial regulators have proposed to “boost diversity and inclusion to support healthy work cultures, reduce groupthink and unlock talent.”
The measures also aim to enhance the safety and soundness of firms and improve understanding of diverse consumer needs. The bodies said that increased diversity and inclusion in regulated financial services firms can deliver better internal governance, decision making and risk management.
The proposals include new rules and guidance indicating that misconduct such as bullying and sexual harassment poses risks to a healthy firm culture. This guidance will help firms take decisive and appropriate action against employees for such behaviour.
“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,” Financial Conduct Authority chief executive Nikhil Rathi said. “The data suggests this isn’t happening. Our proposals will encourage the most prominent 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”
Rathil said the Financial Conduct Authority is leading by clearly stating that non-financial misconduct, such as sexual harassment, is misconduct for regulatory purposes. The Financial Conduct Authority is strengthening its expectations on how the firms it regulates consider such misconduct when deciding whether someone is fit and proper to work within the industry.
“Diversity and inclusion play an important role in guarding against groupthink within firms,” Prudential Regulation Authority chief executive Sam Woods added. “Firms in which a broad range of perspectives is welcomed and encouraged will manage their risks better, advancing the Prudential Regulation Authority’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 Financial Conduct Authority said that work led by the government and voluntary initiatives have progressed. This includes projects such as the Treasury’s Women in Finance Charter and the Parker and FTSE Women Leaders Review. While the two bodies admit that diversity and inclusion are broad issues for society, they consider that there is a role for regulators to play where diversity and inclusion are relevant to their objectives.
This week, the Financial Conduct Authority and Prudential Regulation Authority brought forward proposals after receiving what they said was broad support following the release of their 2021 Discussion Paper. The recommendations set flexible, proportionate minimum standards to raise the bar, placing more requirements on larger firms.
The proposals set out for firms include requirements to develop a diversity and inclusion strategy setting out how the firm will meet its objectives and goals; the collection, reporting and disclosure of data against specific characteristics; and the setting of targets to address under-representation.
The Financial Conduct Authority and Prudential Regulation Authority said flexibility is at the heart of these proposals. Each firm is different, and they need to develop their own solutions. Most of these requirements only apply 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. That contributes to promoting the safety and soundness of firms, policyholder protection and better outcomes for markets and consumers.
The consultation is open until Dec. 18.