The FCA, PRA and BoE have published a discussion paper on their plan to improve diversity and inclusion in regulated firms. Although the paper notes that some progress in this space has been made through initiatives such as the Women in Finance Charter, Race at Work Charter and the Social Mobility Task Force, it describes the D&I landscape as remaining "in its infancy", emphasising that all aspects of diversity need to be part of the conversation.
The FCA in particular has been clear that it sees D&I as within its purview. FCA CEO Nikhil Rathi used a recent speech to underline the FCA's view that diversity and inclusion are regulatory issues. He argued that they play a key role in ensuring the effective challenge of decision makers and the psychological safety of staff, and help firms understand the needs of their customers. A recent study by Willis Towers Watson also concluded that diverse investment teams outperform their more homogenous peers.
The discussion paper seeks views on a wide-range of topics including:
- increasing the focus on board monitoring/challenge of progress on D&I, including impact on outcomes and what the firm’s “purpose” means for D&I
- requiring Boards more explicitly to set D&I strategy and policy and oversee progress
- linking remuneration to D&I metrics as part of the overall assessment of non-financial performance
- requiring public disclosure by firms and the regulators of certain D&I data
- requiring “diversity audits”
- introducing possible mandatory D&I training requirements
- enhancing product governance requirements (whether through the consumer duty or otherwise) so as to require firms to take account of consumers’ protected and other diversity characteristics
While no doubt firms would grapple with the implementation of some of the more prescriptive proposals, D&I has become increasingly prominent within financial services firms in recent years. D&I initiatives such as reverse mentoring and social mobility programmes are gaining traction and firms' mission and value statements commonly articulate how and why being a responsible business, including D&I, is important and indeed necessary in order to survive and thrive in this time of uncertainty resulting from the COVID-19 pandemic. This paper is another step in the right direction, and the more input received from a wide range of participants in the financial services industry the better.
Responses are requested by 30 September 2021.
“While some progress has been made to improve diversity and inclusion in parts of the financial services sector over the last decade, the discussion is still in its early stages, and more needs to be done to speed up progress. Regulators and industry need to work together to increase diversity at senior levels and ensure that the UK’s financial services firms are best equipped to serve the economy. A lack of diversity of thought can lead to a lack of challenge to accepted views and ways of working, which risks compromising firms’ safety and soundness.