The Financial Conduct Authority and the Prudential Regulation Authority have launched separate consultations on how to increase diversity and inclusion, mainly for large firms. The consultation is open until 18 December 2023, and the regulators plan to publish final rules in 2024. 

 

The two regulators said they aim “to support healthy work cultures, reduce groupthink and unlock talent”, which would also aim to enhance the safety and soundness of firms and improve understanding of diverse consumer needs, and improve decision making and risk management.    

 

The proposals include new rules and guidance specifying that bullying and sexual harassment pose a risk to healthy firm culture. They include requirements to:  

 

Most of these requirements, including setting targets, regulatory reporting and disclosure, would only apply to the largest firms, with the regulators stressing that “flexibility is at the heart of the proposals”. 

 

“For UK financial services to be competitive and for the companies in it to be well run with healthy work environments, it’s 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,” said FCA chief executive Nikhil Rathi. 

 

“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,” Rathi added. 

 

Sam Woods, chief executive of the PRA, stressed the need to prevent 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,” Woods said. 

 

The proposals come as women, ethnic minorities and other groups remain under-represented in financial services. The most recent Women in Finance Charter Annual Review reported that in 2022, female representation in senior management among charter signatories averaged 35%, while consultancy Deloitte found that just 19% of executive positions in banking, capital markets and payments are held by women. In fund management, the number of female fund managers rose to only 12% in the last year, according to CityWire’s Alpha Female Report 2023.  

 

The Equality Group found there are the same number of FTSE100 chief executives called Steve or Andy as there are women – nine each – and more Steves and Andys than the seven ethnic minority FTSE CEOs, just one of whom is Black. 

 

Under-representation in companies is reflected in under-provision and take-up. The FCA’s Financial Lives survey found that people from a minority ethnic background are much less likely to have private pension provision, savings accounts or protection policies.  

 

   

Provider Scottish Widows considers government pensions policy a key driver of underpensioning, calling on government to break a cycle of financial injustice for ethnic minority women. It found that 54% of Black women do not have retirement savings, compared with 40% of South Asian women and 35% of White women.    

 

    

Ethnic minority representation on boards remains a sticking point. The latest Parker Review found that more than 100 of the FTSE250 either have no ethnic minority representation on their boards or are unable or unwilling to provide data. 

  

The FCA and PRA stressed that a 2021 discussion paper received broad support for regulatory action to address diversity and inclusion. 

 

The FCA already introduced rules on gender and ethnicity disclosure for company boards and executive committees in April 2022.  

 

    

The FCA’s consultation is available on its website, while the PRA's can be found on the Bank of England website. 
 

What role can asset owners play in improving D&I among firms?