UK: Diversity And Inclusion In The Financial Services Sector

The FCA and PRA have now issued their much-anticipated Consultation Paper on improving Diversity and Inclusion (D&I) in the financial services sector.

After waiting almost two years since their discussion paper "Diversity and Inclusion, Working Together to Drive Change" was published, this Consultation invites views on a range of proposals to improve Diversity and Inclusion in the financial services sector. The Consultation closes on 18 December 2023, and interested parties are invited to read the Consultation Paper and respond here.

The main points to note at this stage however are that the new measures are intended to apply proportionately, and many will only apply to large firms.

The main impact on larger in-scope firms (those with more than 250 employees, using the FCA and PRA's adopted definitions) are that they will now have more onerous reporting obligations and will for example have to collect and report data annually across a range of demographics including age, sex or gender, disability, ethnicity, religion and sexual orientation. Internally gathered culture and inclusion feedback will also need to be reported and certain firms will be expected to set and report on targets to address under-representation within their firms. Voluntary reporting is proposed in respect of other smaller firms and for other characteristics (including socio-economic background, gender identity, parental responsibilities, carer responsibilities etc).

Relevant in-scope firms will be expected to develop and publish an evidence-based Diversity and Inclusion strategy, to include their objectives and goals, a plan for meeting those and measuring progress, a summary of the arrangements in place to identify and maintain any obstacles to meeting those objectives and goals and ways to ensure the firm's strategy is known among staff.

Importantly, new rules for non-financial misconduct will apply to all regulated firms whatever their size, and the Consultation Paper proposes that non-financial misconduct will be specifically included in the Conduct Rules and Fit and Proper Assessments and Threshold Conditions. For example, it is proposed that bullying and harassment will be relevant to fitness and propriety assessments and serious behaviour in a person's private life will also now be relevant. In respect of Conduct Rules, clarification is proposed that will make it clear serious instances of bullying and harassment are covered and further guidance will be given on what types of behaviour might be a breach of the Conduct Rules (and also what is not).

Final rules are proposed for 2024, to take effect one year later, however all firms will need to review the Consultation and consider what actions they need to take. In particular, in-scope firms not currently collecting data on a voluntary basis will need to think about how they go about engaging with employees to encourage what can be sensitive data to be provided, as well as looking at the data protection measures they already have in place in order to make sure they are strong enough.