Regulators outline plans to improve diversity in financial services

Written by Michael Griffiths

25/09/2023

The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are proposing new measures to boost diversity and inclusion across the financial services sector.

In consultation papers published today, the two regulators have set out proposals to “support healthy work cultures, reduce groupthink and unlock talent”.

A statement from the FCA revealed that the measures aim to enhance the safety of firms as well as improve understanding of diverse consumer needs. The regulator said that increased diversity and inclusion in regulated financial services firms can deliver “better internal governance, decision making and risk management”.

As part of the plans, there would be new rules to make clear that misconduct, such as bullying and sexual harassment, poses a risk to healthy firm culture. Guidance outlined in the measures would also aim to help ensure firms can take decisive 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,” said FCA chief executive, Nikhil Rathi. “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.”

Proposals set out by the regulators would include requirements for firms to develop a diversity and inclusion strategy setting out how they could meet their objectives and goals. Firms would also be required to collect, report and disclose data against certain characteristics, as well as set targets to address under-representation.

The regulators would also expect firms to come up with their own solutions to the proposals they plan to introduce.

PRA chief executive, Sam Woods, added: “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 FCA confirmed that consultation on the plans will remain open until 18 December.

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