UK financial regulators propose new diversity and inclusion framework in consultation paper

• Aparna Sreevalsan
• 31 October, 2023

IN a significant development for the financial sector in Britain, the country’s financial regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), have published their consultation papers (CP) outlining proposed changes to the regulatory framework on Diversity and Inclusion (D&I).

The release of this document marks a critical step in the ongoing efforts to enhance diversity and inclusivity within the industry.

The consultation paper introduces several key elements that will be integrated into the existing regulatory framework, setting forth minimum standards while providing financial institutions with a clearer understanding of regulatory expectations.

The proposals aim to promote D&I in the industry and establish a more comprehensive approach to non-financial misconduct as a regulatory concern.

This development is a follow-up to an initial Discussion Paper presented in July 2021.

The newly released documents contain requirements and recommendations that are poised to influence the current diversity and inclusion strategies of various financial enterprises.

While there are some minor disparities between the FCA and PRA documents, both regulatory bodies generally concur on the primary recommendations outlined in the consultation paper.

The paper suggests modifications and additions to regulations in various policy areas.

Some of the key recommendations include certain firms to:

• report their average number of employees on an annual basis
• collect, report, and disclose certain D&I data
• establish, implement, and maintain a D&I strategy
• determine and set appropriate diversity targets
• recognise a lack of D&I as a non-financial risk

A few key proposals are also subject to proportionality and therefore apply only to larger firms.

In accordance with UK gender pay gap reporting requirements, larger enterprises are classified as those that employ 251 or more people at a single location.

All the requirements in the consultation documents, including this proportionality, apply at the entity level.

The FCA’s approach to non-financial misconduct has been under increasing scrutiny with questions around the FCA’s rules on fitness and propriety and whether they are fit for purpose in addressing non-financial misconduct.

Its latest consultation paper lays out its plans to address this, suggesting that non-financial misconduct be incorporated into the Fit and Proper evaluations, the Code of Conduct (COCON), and the threshold conditions (COND) that determine a firm’s eligibility to operate in the financial sector.

The FCA’s Consultation Paper is available here and the PRA’s is available here.