UK: regulators propose new diversity and inclusion requirements for financial services

The FCA, PRA and Bank of England (the regulators) have published a discussion paper (DP21/2) which aims to kick-start discussion on how the financial services sector, with the help of the regulators, can “accelerate the pace of meaningful change” in improving diversity and inclusion (D&I) within financial services firms.

The policy options being considered in DP21/2 include:

• regular reporting of diversity data to the regulators;
• the use of targets for representation;
• measures to make senior leaders directly accountable for D&I in their firms;
• linking remuneration to D&I metrics;
• having a D&I policy, training on D&I and undertaking a diversity audit; and
• the regulators’ approach to non-financial misconduct, and considering D&I in Senior Managers approvals and assessment of threshold conditions.

The discussion paper also focuses on the importance of data and disclosure in order to enable firms, regulators and other stakeholders to monitor progress.

DP21/2 is relevant to all regulated firms, including payment services and e-money firms, credit rating agencies and financial market infrastructure firms (FMIs). The regulators recognise that D&I will look different for different firms and will not apply a one size fits all approach to D&I.

The proposals in the discussion paper are potentially far-ranging, addressing people-related policies and practices, governance arrangements, accountability, remuneration arrangements, approach to customers and disclosure. Given the importance of the issues raised, the potential for significant change and the level of regulatory scrutiny being proposed, firms should actively engage in this discussion, which is open for response until 30 September 2021.

For more a detailed overview of the policy options proposed in DP21/2, please see our Financial Services team's briefing here.

Update: February 2022

In February 2022 the Financial Services Culture Board (FSCB) and the Financial Services Skills Commission (FSSC) published a report setting out the findings of their survey of employees at 13 member firms in 2021, to help financial services firms measure perceptions of inclusion in their organisations. This recommended four actions firms can take to help improve inclusion:

• measure inclusion as well as diversity ensuring different views can be gathered and assessed
• develop and demonstrate a culture of listening to employee feedback and listening to and valuing feedback
• maintain and demonstrate fair and transparent processes and systems
• demonstrate strong leadership on inclusion.

Following the discussion paper outlined above, the PRA and the FCA have stated they intend to consult on more detailed proposals and publish a policy statement in 2022.