FCA consults on diversity and inclusion in financial services

4 mins

Posted on 17 Oct 2023

FCA consults on diversity and inclusion in financial services

The FCA (Financial Conduct Authority) is consulting on measures to improve diversity and inclusion (“D&I”) in the financial services sector. It recognises that greater D&I can create better outcomes for consumers and markets by supporting healthy work cultures, reducing groupthink, unlocking talent and improving understanding of diverse consumer needs. The Consultation Paper will primarily be of interest to all firms with a Part 4A FSMA permission, though the FCA highlights that not all firms would be subject to the same requirements or have to meet them in the same way.

Non-financial misconduct

The FCA proposes to better integrate non-financial misconduct considerations into the Conduct Rules, staff fitness and propriety assessments, and the suitability criteria for firms. These proposals apply to all firms, irrespective of size.

It proposes to expand the scope of the Code of Conduct for Staff sourcebook (COCON) to make it clear that it covers serious instances of bullying, harassment and similar behaviour towards fellow employees, employees of group companies and contractors. Guidance will be added on the types of behaviour that will fall within this expanded scope, and so could breach the Conduct Rules. It will also provide guidance on what conduct is out of scope because it relates to an employee's personal or private life. The FCA will only take disciplinary action for serious breaches i.e. particularly serious instances of bullying, harassment or similar behaviour, or multiple instances that are collectively particularly serious.

The FCA also proposes to explain that bullying and similar misconduct within the workplace is relevant to fitness and propriety assessments, as is similarly serious behaviour in a person’s personal or private life. It proposes to give examples of non-financial misconduct, such as sexual or racially motivated offences and to clarify that conduct that could damage public confidence is likely to mean that the person is not fit and proper.

The FCA proposes extending the guidance on the suitability threshold condition contained in the Threshold Conditions part of the Handbook (COND) to include, for example, offences relating to a person or group's demographic characteristics (such as sexual or racially motivated offences) and tribunal or court findings that the firm (or someone connected with it, such as a director) has engaged in discriminatory practices.

Other proposals

The FCA also proposes to introduce requirements for reporting data and establishing D&I strategies and diversity targets. It proposes that Limited Scope SM&CR (Senior Managers & Certification Regime) firms would not be covered by these requirements.

Data reporting

The FCA proposes to require:

  • All firms, irrespective of size, to report their average number of employees to it on an annual basis;
  • Larger firms (those with 251 or more employees) to collect, report and disclose D&I data annually across a range of demographic characteristics, inclusion metrics and targets. This would be done via a regulatory return.

Diversity and Inclusion strategies

The FCA proposes that larger firms and all dual regulated firms (regardless of size) should be required to establish, implement and maintain a D&I strategy, with the firm’s board responsible for the maintenance and oversight of the policy. The D&I strategy must contain, as a minimum, the firm’s D&I objectives and goals, a plan for meeting them and measuring progress, a summary of its arrangements for identifying and managing any obstacles to meeting its objective/goals, and ways of ensuring staff have adequate knowledge of the strategy.

Diversity targets

Finally, the FCA proposes that larger firms will be required to set diversity targets to address underrepresentation. It will normally expect firms to set at least one target for each of the board, its senior leadership, and the employee population as a whole (which includes the board and senior leadership). It also proposes that firms should be required to disclose publicly their targets and their progress towards meeting them on an annual basis.

The PRA has also published a consultation setting out its proposed rules and expectations aimed at improving D&I outcomes in PRA-regulated firms. Both consultation papers close to comments on 18 December 2023. The FCA and the PRA will review feedback and develop final regulatory requirements for publication in policy statements in 2024. They propose to bring rules into force in 2025, one year after publication of the policy statements.

Please contact Charlie Herbert if you have any questions about how the consultation proposals may affect you.

Charles Herbert

Charlie leads the firm's Regulatory and Financial Services Disputes practice. He joined Doyle Clayton to set up the team having worked as legal counsel in the Enforcement and Litigation Division at the Bank of England. Prior to that, he was a senior solicitor in the Contentious Regulatory and Litigation Teams at Santander UK plc and in the litigation team of a leading national law firm, where he also undertook a secondment in the Barclays Litigation team.

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