"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."
In consultation papers published today, the FCA and PRA have set out proposals to boost diversity and inclusion in the financial services industry.
The measures aim to support healthy work cultures, reduce groupthink and unlock talent, as well as enhance the safety and soundness of firms and improve understanding of diverse consumer needs.
The proposals include new rules and guidance to make clear that misconduct such as bullying and sexual harassment poses a risk to healthy firm culture, ensuring firms can take decisive and appropriate action against employees for such behaviour.
Work led by the Government, as well as voluntary initiatives, have already made progress. This includes projects such as the Treasury’s Women in Finance Charter, as well as the Parker and FTSE Women Leaders Review. While diversity and inclusion is a broad issue for society, the FCA and PRA consider that there is a role for regulators to play where diversity and inclusion is relevant to their objectives.
The proposals set flexible, proportionate minimum standards to raise the bar, placing more requirements on larger firms. Proposals set out for firms include requirements to develop a diversity and inclusion strategy setting out how the firm will meet their objectives and goals, collect, report and disclose data against certain characteristics, and set targets to address under-representation.
The regulators stressed that most of these requirements, including setting targets, regulatory reporting and disclosure, would only apply only 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.
The consultation is open until 18 December 2023 and the feedback will be used to develop final rules planned for publication in 2024.
FCA chief executive, Nikhil Rathi, said: "For UK financial services to be competitive and for the companies in it to be well run with healthy work environments, its vital they attract, retain and promote the best talent. 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."
PRA chief executive, Sam Woods, commented: "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."
Priti Verma, chief risk officer at Quilter, added: “This consultation sends a clear message that it is high time that diversity is taken seriously in financial services and that poor office behaviours can no longer be tolerated. The financial services sector needs to go much further to break down perceptions that it’s a ‘boys’ club’, as it is this that directly prevents women and girls viewing financial services as a potential career.
“The regulator’s intervention is a timely reminder us all about how important diversity at the very top is in setting a healthy corporate culture, where people are free to speak. And that includes diversity in general – not just gender diversity.
“But protecting people’s rights and making them feel like they belong in a workplace should be just the bare minimum. Greater diversity should be part of company strategy and recognised as a non-financial risk. Getting it right can help improve both business performance and investment returns. More diversity on boards means more varied perspectives and experiences, which allows for more effective decisions to be made, and group think to be challenged.
It’s our hope that young women across the country view the plethora of roles within financial services, including financial advice, as a potential option for them. It’s no secret that the financial services industry needs to better reflect the customers it is serving and that includes recruiting more women as well as more people from diverse backgrounds.”
