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Regulators outline plans to improve diversity in financial services

Our Employment team comment on the FCA’s and PRA’s recent proposals to enhance diversity and inclusion within the financial services sector.

2 minute read

Published 2 October 2023

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  • Financial services

The Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) recently announced proposals to strengthen diversity and inclusion strategies in the firms they regulate, alongside greater regulation of non-financial misconduct.

The new proposals suggest the implementation of targets to address under-representation and the collection, reporting and disclosure of data to easily highlight areas in requirement of focused change.

However, the new proposals indicate that unrealistic targets will not be imposed on all firms. Some smaller firms may simply see a minimum standard prescribed (such as a zero-tolerance approach to discriminatory conduct). While larger firms will be given greater responsibilities. Overall, however it is hoped the proposals would help shift company cultures towards diversity and inclusion, and at greater pace.

As part of a purposeful move towards boosting diversity and inclusion in the financial services, one suggestion is to request those firms already required to publish their gender pay gap data, to disclose statistics for other protected characteristics.

Employers in the financial sector can therefore likely expect to have greater reporting and other responsibilities placed on them. Employers should read the new proposals carefully and prepare for the change. However, with the wider industry trend moving towards greater diversity and inclusion, albeit perhaps not at the desired pace, some firms may find they have less to implement.

However, behind the FCA and PRA’s proposals to increase diversity, is a valuable objective to reduce ‘group think’. By unlocking more diverse perspectives, the stated intention is that financial firms will constructively challenge and widely collaborate with financial workers who reflect the diverse consumer base.

The FCA’s Financial Lives Survey demonstrates that consumers in minority groups experience unequal outcomes, such as being less likely to have a private pension, savings account or protection policies.

By diversifying the financial services who act for these consumers, the needs of the market can be better met through a broader range of perspectives. It is hoped the regulators mission to bring in further diversity and inclusion will unlock and strengthen the talent pool of the financial services, in turn promoting competition, and furthering economic growth, as the talent and experience of the financial services is strengthened.

These proposals signal that financial regulators are adopting a wider, more holistic approach to the culture of financial services.

They are moving further away from the restrictive focus of financial conduct and engaging more heavily in the promotion of healthy work environments, both in terms of diversity and inclusion, but also in terms of combatting all types of misconduct. It is well known within the financial services sector that regulators are becoming more and more interested in cases of sexual harassment, and the FCA has recently said that instances of bullying and sexual harassment are ‘relevant’ in assessing whether executives are fit and proper.

Rathi (FCA Chief Executive) communicated the ‘clear stance that non-financial misconduct, such as sexual harassment is misconduct for regulatory purposes.’

The attention on these wider conduct issues is of poignance, as an investigation into the high-profile case of Crispin Odey continues, opening further questions as to what conduct should be considered in the assessment of fitness for the financial services.

Concern has been reported regarding the lack of clarity around which behaviour falls within the realm of ‘non-financial misconduct’ for the purposes of regulation. Industry stakeholders are asking for greater guidance as to what behaviour should be reported, what the outcomes of those breaches of conduct will be, and the boundaries concerning whether the focus on non-financial conduct is limited to actions which occur within the workplace, or to what extent the behaviour of employees outside of work will be of interest to regulators. It has been suggested that a lack of clarity could lead to over-reporting.

It is a positive step to witness regulators widening regulation to embody these critical work-environment issues, empowering firms to take stronger and appropriate actions against non-financial misconduct, such as sexual harassment and bullying.

Optimistically, the focus regarding these factors, will boost the integrity of the financial services, increasing public confidence.

These proposals from the FCA and PRA are likely a foresight into what is to come for the financial regulators in the future, both employers and regulated individuals should take note of this shifting climate.

For more information, visit our Employment Lawyers page.

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Longer Reads

Regulators outline plans to improve diversity in financial services

Our Employment team comment on the FCA’s and PRA’s recent proposals to enhance diversity and inclusion within the financial services sector.

Published 2 October 2023

Associated sectors / services

  • Employment law for employers
  • Financial services

Authors

The Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) recently announced proposals to strengthen diversity and inclusion strategies in the firms they regulate, alongside greater regulation of non-financial misconduct.

The new proposals suggest the implementation of targets to address under-representation and the collection, reporting and disclosure of data to easily highlight areas in requirement of focused change.

However, the new proposals indicate that unrealistic targets will not be imposed on all firms. Some smaller firms may simply see a minimum standard prescribed (such as a zero-tolerance approach to discriminatory conduct). While larger firms will be given greater responsibilities. Overall, however it is hoped the proposals would help shift company cultures towards diversity and inclusion, and at greater pace.

As part of a purposeful move towards boosting diversity and inclusion in the financial services, one suggestion is to request those firms already required to publish their gender pay gap data, to disclose statistics for other protected characteristics.

Employers in the financial sector can therefore likely expect to have greater reporting and other responsibilities placed on them. Employers should read the new proposals carefully and prepare for the change. However, with the wider industry trend moving towards greater diversity and inclusion, albeit perhaps not at the desired pace, some firms may find they have less to implement.

However, behind the FCA and PRA’s proposals to increase diversity, is a valuable objective to reduce ‘group think’. By unlocking more diverse perspectives, the stated intention is that financial firms will constructively challenge and widely collaborate with financial workers who reflect the diverse consumer base.

The FCA’s Financial Lives Survey demonstrates that consumers in minority groups experience unequal outcomes, such as being less likely to have a private pension, savings account or protection policies.

By diversifying the financial services who act for these consumers, the needs of the market can be better met through a broader range of perspectives. It is hoped the regulators mission to bring in further diversity and inclusion will unlock and strengthen the talent pool of the financial services, in turn promoting competition, and furthering economic growth, as the talent and experience of the financial services is strengthened.

These proposals signal that financial regulators are adopting a wider, more holistic approach to the culture of financial services.

They are moving further away from the restrictive focus of financial conduct and engaging more heavily in the promotion of healthy work environments, both in terms of diversity and inclusion, but also in terms of combatting all types of misconduct. It is well known within the financial services sector that regulators are becoming more and more interested in cases of sexual harassment, and the FCA has recently said that instances of bullying and sexual harassment are ‘relevant’ in assessing whether executives are fit and proper.

Rathi (FCA Chief Executive) communicated the ‘clear stance that non-financial misconduct, such as sexual harassment is misconduct for regulatory purposes.’

The attention on these wider conduct issues is of poignance, as an investigation into the high-profile case of Crispin Odey continues, opening further questions as to what conduct should be considered in the assessment of fitness for the financial services.

Concern has been reported regarding the lack of clarity around which behaviour falls within the realm of ‘non-financial misconduct’ for the purposes of regulation. Industry stakeholders are asking for greater guidance as to what behaviour should be reported, what the outcomes of those breaches of conduct will be, and the boundaries concerning whether the focus on non-financial conduct is limited to actions which occur within the workplace, or to what extent the behaviour of employees outside of work will be of interest to regulators. It has been suggested that a lack of clarity could lead to over-reporting.

It is a positive step to witness regulators widening regulation to embody these critical work-environment issues, empowering firms to take stronger and appropriate actions against non-financial misconduct, such as sexual harassment and bullying.

Optimistically, the focus regarding these factors, will boost the integrity of the financial services, increasing public confidence.

These proposals from the FCA and PRA are likely a foresight into what is to come for the financial regulators in the future, both employers and regulated individuals should take note of this shifting climate.

For more information, visit our Employment Lawyers page.

Associated sectors / services

  • Employment law for employers
  • Financial services

Authors

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