FCA proposes new D&I measures

The FCA and PRA (Prudential Regulation Authority) have launched a consultation on a recent proposal to introduce a new regulatory framework on Diversity and Inclusion (D&I) in the financial sector.

The consultation paper sets out an approach aimed at enhancing diversity and inclusion, with the specific goals of supporting healthier firm cultures, reducing groupthink, and unlocking talent.

The proposed framework seeks to establish minimum standards for all FSMA firms with a part 4A permission and further rules for firms with more than 251 employees. It does not aim to set specific targets, instead leaving firms to decide what is relevant to their needs.

The FCA is motivated by evidence that D&I is not improving fast enough across the financial sector.  

The requirements proposed for all firms are:

• Non-financial misconduct - to add guidance on how non-financial misconduct should be incorporated into regulatory references. The FCA proposes amending the FCA Handbook to reflect the view that non-financial misconduct is misconduct and not an additional principle. It is thought most firms already support this view; the proposal aims to give firms reassurance in their approach to taking action against employees for instances of non-financial misconduct (e.g., bullying and harassment).

• Fit and Proper assessments: to explain how non-financial misconduct forms part of the Fit and Proper test for Employees and Senior Personnel (FIT) section of the FCA Handbook. The FCA proposes that bullying and similar misconduct in the workplace as well as in a person’s personal or private life, are relevant to fitness and propriety. Examples of non-financial misconduct, such as sexual or racially motivated offences, will be provided.

• Suitability Threshold Condition: to extend current guidance to include, for example, sexual or racially motivated offences, or court findings that the firm/employee has engaged in discriminatory practices.

• Data reporting: for firms to complete a regulatory return with the average number of employees at the firm so the FCA know which requirements apply to each firm.

For firms with more than 251 employees, there are a range of additional new rules proposed including board responsibility for the maintenance and oversight of a firm’s D&I strategy, setting targets to address underrepresentation, and disclosing a range of mandatory demographic characteristics and inclusion metrics and targets via a regulatory return.

If you need help reviewing and updating your D&I policy and firm-level initiatives, please get in touch.