- Healthier firm cultures;
- Reduced groupthink;
- New talent unlocked; and
- Greater understanding of, and provision for, diverse consumer needs.
The Financial Conduct Authority's (FCA) consultation paper was published alongside a similar paper from the Prudential Regulation Authority (PRA), and details their view that greater diversity and inclusion will widen the UK financial sector's talent pool, increase the sector's competiveness and allow firms to benefit from a wider range of knowledge, skills and experiences. Running alongside this is the belief that healthier and more diverse work cultures will promote more contribution and challenge.
One of the core proposals is also to provide further guidance on how non-financial misconduct should be treated by regulated firms, with particular focus on enhancing the Fit and Proper test for Senior Management Function (SMF) holders, the Conduct Rules and the Suitability Threshold Conditions. Examples of non-financial misconduct provided within the paper included bullying, sexual misconduct and racially motivated offences. The proposed changes arrive shortly after the FCA's chief executive, Nikhil Rathi, stated that "Financial services workplaces need to be safe places for women" following a string of harassment allegations in the city and high profile claims of improper conduct.
The paper details the proposed framework to promote diversity and inclusion. This would include applying minimum standards to all FSMA firms with Part 4a permissions and introducing additional requirements for large firms. FSMA Firms with Part 4a permissions would need to follow the new non-financial misconduct rules and be required to report employee numbers annually. Large firms with 251 or more employees will have additional requirements and reporting. They will be responsible for creating and maintaining a firm-wide strategy detailing their plans for diversity and inclusion and will also have to report annually to the FCA on a range of demographic characteristics, with targets set to address under-representation.
The paper aligns with the increased interest, from both stakeholders and the regulators, in how organisations do business and the culture they develop. As well as the existing requirements imposed by the Senior Managers and Certification Regime (SM&CR) and the Consumer Duty, this shows that culture continues to be a key focus and it is therefore essential for firms to develop a value-led strategy, which creates an inclusive and prosperous environment for all. Recent communications from the FCA also indicate an expectation that this culture and tone is driven from the top, to ensure it has the required impact for staff and consumers.
In terms of next steps, comments on the Consultation Paper are due by 18 December 2023, with the Policy Statement due to follow in 2024. In the interim, the FCA will be hosting a webinar on 30 October 2023 to discuss the paper and their proposals.
