FCA and PRA propose new measures to enhance diversity and inclusion in financial services sector

The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have released consultation papers that outline a series of proposals aimed at improving diversity and inclusion within the financial services industry.

The regulatory bodies assert that these measures could improve workplace culture, reduce the pitfalls of groupthink, and better serve a diverse consumer base.

Among the proposed guidelines are rules aimed at reducing non-financial misconduct, such as bullying and sexual harassment. These measures are expected to empower firms to take prompt and appropriate actions against such behaviours.

Nikhil Rathi, chief executive at the FCA, said: “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. Our proposals will encourage the largest firms to put in place plans and report against their delivery.”

Sam Woods, chief executive at the PRA, added: “Diversity and inclusion play an important role in guarding against 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.”

The proposals include establishing a diversity and inclusion strategy that outlines a firm’s specific objectives and goals. Additionally, larger firms will be required to collect, report, and disclose data based on certain characteristics, and set targets to tackle under-representation within their organisations. While the new rules are designed to be flexible, allowing firms to tailor their approach, they are more stringent for larger firms.

These steps build on earlier efforts, including governmental initiatives like the Treasury’s Women in Finance Charter and voluntary reviews such as the Parker and FTSE Women Leaders Review. Both the FCA and the PRA believe that the new proposals, which received wide support in their 2021 Discussion Paper, will further their objectives, including improving internal governance, decision-making, and risk management across firms.

The consultation period for these proposals is open until December 18th, 2023, and the regulators are actively seeking feedback from all stakeholders. Final rules based on this consultation are expected to be published in 2024.