FCA and PRA consult on proposals to increase diversity and inclusion in financial services

The FCA and PRA are consulting on measures to boost diversity and inclusion in financial services, building on their July 2021 Discussion Paper, with the aim of introducing a new regulatory framework on diversity and inclusion for the sector in 2024. The joint consultation runs until 18 December and will shape a final set of rules which the regulators plan to publish in 2024. We’ll speak to a D&I specialist about what firms can do now to prepare for the new framework. 

The pair of consultation papers set out the regulators’ rationale which is, they say, to boost diversity and inclusion to support healthy work cultures, reduce groupthink and unlock talent. They argue the measures will ‘enhance the safety and soundness of firms and improve understanding of diverse consumer needs. Increased diversity and inclusion in regulated financial services firms can deliver better internal governance, decision making and risk management.’

Anne Sammon comments on this for Out-Law in her article: ‘UK regulators’ diversity plans for finance industry’ where she explains what the regulator’s want to see in terms of strategy and reporting. So, in scope firms will be required to develop an evidence-based D&I strategy that takes account of their current progress on D&I. Strategies must set D&I objectives and goals; detail a plan for meeting them and measuring progress; and firms must ensure there is adequate knowledge of this strategy amongst staff. The firm’s board will be responsible for maintenance and oversight of the strategy, including reviewing it to ensure it remains appropriate and effective. Firms will have to report to the FCA each year on progress in relation to age; sex or gender; disability; ethnicity; religion, and sexual orientation.

The consultation papers are very detailed and wide-ranging and cover many of the issues that we have been working on with our clients for some time with help from both our team of employment lawyers and also our D&I consultancy, Brook Graham. That work has covered all aspects of diversity but, as Anne points out, we’ve noticed that it is in the area of ethnic diversity where many firms have fallen behind. She says good progress has been made by most firms in most areas but not so with race which has ‘dropped off the radar’ to some extent. 

Given that firms will need to report to the FCA on all aspects of diversity it means that focus on ethnic diversity will need to be re-established, so let’s hear about that. Earlier D&I specialist Shuabe Shabudin joined me by video-link from Birmingham to discuss this. I put to Shuabe that firms in the sector need to appreciate that point:

Shuabe Shabudin: “Exactly right and, unfortunately, it's a message that I've given quite a few times, over the last year, 18 months,  or so, which is that certainly in the wake of the George Floyd murder there was some really good intention, really good progress, and really good targets set, and for any number of reasons those targets, those intentions, that progress, may not have been met and so I have been campaigning and counselling for firms to really put the spotlight back on to race inequality, race related issues and actually what we've got now is the FCA and the PRA very likely making it a regulatory requirement for firms to be looking at that and, clearly, that involves looking at data, that involves looking at numbers, and that involves looking at the story that needs to be told.”

Joe Glavina: “I’m aware that the work you’ve been doing with clients, Shuabe, has been focused on ethnicity primarily. Is that because clients have been asking for help in that area specifically?” 

Shuabe Shabudin: “Yes, very much so. So, with the regulators coming out and launching these consultations and, as I say, making clear that there is going to be the need for some kind of publication of data, a number of clients have been coming to us and asking for support on how they do that. Now, that may be because they don't have the data, it may be because they've got the data and they don't know how to analyse it, or it may be because they've got the data, they've done the analysis, but they don't know how to set out the rationale for what happens next. Now, very, very importantly, that publication of data, and potentially also if you're a dual regulated firm, that publication of a rationale, is very likely to be made a regulatory requirement. So, we've had a number of firms coming to us and asking for our support on that because it's something that we've done very regularly with a number of other firms just in the way of their move towards being an employer of choice. There is still a war on talent so whilst this is important, morally, and ethically, there is also a business-related benefit to having done it. So, all of that into the mix, is why there has been an increase in the number of firms coming to us for our support.”

Joe Glavina: “Any key message for in-house lawyer and/or HR professionals?” 

Shuabe Shabudin: “So, in terms of key messages, and not to stress it too much, but I do think a game changer is that whilst firms may previously have been able to take action, put together targets, whatever it may be, internally, and for that only to be communicated internally, it is very likely that there will need to be some publication of information externally and, of course, wherever there is external information to be published, on a website, in a report, whatever it might be, there are some sensitivities around the communication of that, the narrative behind that. So that's one of the areas where we are able to support and just make sure that the messaging is correct because, clearly, there are some strong reputational points here, and some reputational risks that needs to be borne in mind.” 

Given the need for firms to catch up on ethnicity in the way that Anne Sammon and Shuabe have identified, the team has developed a Race Leadership Product designed to help firms in that area. There’s a helpful flyer which sets out the different service offerings and we’ve put a link to that in the transcript of this programme for you. We’ve also included links to Anne’s Out-Law article and the two consultation papers. The consultation runs until Monday 18 December so you still have time to submit your views if you have not done that yet.

LINKS
- Link to PRA’s consultation paper
- Link to FCA’s consultation paper
- A copy of Pinsent Masons’ Race Leadership Product is available by contacting Hayley Dalton
- Link to Out-Law article: ‘UK regulators’ diversity plans for finance industry’