FCA and PRA propose measures to boost diversity and inclusion in financial services
The FCA (and PRA) have published a consultation paper (CP23/20) for the proposal to implement a new regulatory framework on Diversity & Inclusion (D&I). This provides interesting insight into the direction of travel the regulator is taking. It’s clear that wider cultural influences within firms are high on the agenda.
So why is this this happening? Along with the goal of improving customer outcomes, enhancing governance and “reducing groupthink”, the FCA hopes that improving D&I culture will help the UK financial services sector remain an attractive place to work, enhance integrity and ensure that the sector is utilising and unlocking the diverse talent pool available to its maximum potential.
Whilst there’s no new “rules” to follow as yet, the consultation paper is an opportunity for Firms to review the FCA’s plans, provide feedback and most importantly get prepared.
Here are the standout items from the paper that caught my eye:
“Non-financial misconduct” (NFM) –The rules and guidance are likely to go as deep as integrating NFM behaviours into staff fitness & propriety assessments, incorporating it into the Conduct Rules and even the threshold conditions. This means, if staff are found to have committed serious non-financial misconduct inside or outside of the workplace - such as bullying and sexual harassment they may be prohibited from working in regulated firms. It’s a clear indication that the regulator wants Firms to take swift action on the kind of behaviours that are likely to pose any threat to a healthy workplace culture. Over recent years media attention has only served to highlight the consequences of poor workplace cultures and this initiative carries great weight in today’s climate.
Firms should be looking to audit their existing culture and supporting Fit & Proper procedures now so they can assess how much work will be needed to deliver against this change.
Consumer Duty – The consultation comes swiftly on the back of the go-live date of the Consumer Duty in the summer of 2023. At the heart of the duty is a need to understand your target market and ensure your products and services are suitable. The FCA are keen to drive diverse representation within Firms so that their ethics, values, thinking and conduct “truly reflect the societies that they serve”. So, in theory, a diverse workforce (from the top down) will have a better understanding of their customer base and drive better outcomes through the design of products and the servicing of its customers. This is a concept that has already been woven into Consumer Duty guidance.
Firms should carefully consider how their product governance processes incorporate diversity and inclusion to mitigate the risk of groupthink.
Strategy & Reporting: For larger Firms in scope Firms (>250 employees) the expectation is greater and the ask is for a clearly thought out D&I strategy and timely voluntary reporting against a number of demographic characteristics .But data alone won’t give the regulator what they need, so it is important to ensure your expect complaints monitoring, whistleblowing, and adverse media screening processes are all up to scratch.
Firms need to think carefully about how they will collect and use staff data and build a strategy that is both proportionate and flexible.
Firm culture is the foundation upon which D&I initiatives will stand or fall. The two initiatives sit hand in hand and we would strongly encourage any Firm reviewing their D&I strategy or Fit & Proper process to look at assessing their culture at the same time. We have a highly skilled team who specialise in conduct, culture and governance and acting for broad variety of clients across financial services. Please don’t get in touch to understand how we can help.
The consultation is open until 18 December 2023.
Drop me a line, Will@avyse.co.uk
