The Financial Conduct Authority (FCA) has set out, in tandem with the prudential regulator, proposals to boost diversity and inclusion to support healthy work cultures, reduce groupthink and unlock talent.
The idea is that greater diversity could ultimately help facilitate the medium to long-term growth and international competitiveness of the UK economy.
The measures being consulted on also include new rules and guidance to make clear that misconduct such as bullying and sexual harassment poses a risk to sound firm culture.
The intervention by the UK regulators comes after a group of asset owners launched the Asset Owners Diversity Charter a few years ago, committing to incorporate diversity and inclusion considerations into manager selection and monitoring.
According to the FCA, its proposals set flexible, proportionate minimum standards “to raise the bar”, placing more requirements on larger firms.
“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,” said Nikhil Rathi, FCA’s chief executive officer.
“The data suggests this isn’t happening. Our proposals will encourage the largest firms to put in place plans and report against their delivery.”
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, such as disability status and ethnicity;
- set targets to address under-representation.
Most of the requirements, including setting targets, regulatory reporting and disclosure, would only apply only to the largest firms, the FCA said. These will typically already be required to publish gender pay gaps.
Firms will have the option to go further, for example by voluntarily reporting additional data on socio-economic background and gender identity, the FCA said.
“Doing so will highlight where change is needed, allowing firms and regulators to better target their interventions,” wrote Rathi in the foreword of the consultation paper.
“Over time, we expect to see increasing numbers of firms move towards reporting against all characteristics. We may consider moving to mandatory reporting at a later date and welcome feedback on the decision to make certain reporting optional,” he stated.
Richer data needed
Karis Stander, director of culture, talent and inclusion at the Investment Association, the trade body for UK asset managers, said the association welcomed the FCA’s consultation “as there is clear evidence that fostering an inclusive work environment that allows people from all backgrounds to flourish, increases innovation and reduces risk across all financial industries”.
“Data lies at the cornerstone of this – only by gathering richer data and gaining a deeper understanding of the backgrounds of those working within our industry can we drive forward meaningful change,” she added.
The FCA’s consultation is open until 18 December 2023.