It has been clear for some time that the FCA and PRA see diversity and inclusion as a core part of healthy firm cultures: driving better governance, decision-making and risk-management. Non-financial misconduct has come under increasing focus from the FCA in particular, as set out in our recent blog.
On 25 September 2023 the FCA and PRA published consultation papers seeking to boost diversity and inclusion, and re-emphasising the regulators' stance that non-financial misconduct, including bullying and sexual harassment, is misconduct for regulatory purposes.
There are several proposals within both the FCA consultation paper and the PRA consultation paper which will of interest to firms, some of which will be met with resounding support, others with more nervousness about the extent of compliance and changes needed to current practice.
There are new measures to integrate non-financial misconduct (which now has its own acronym - NFM) into fitness & propriety assessments and the Conduct Rules. Additional guidance is proposed to explain in more detail how non-financial misconduct forms part of firms' considerations, with a view to ensuring greater consistency in treatment.
Firms must now develop a D&I strategy, setting clear goals and a plan for meeting those. The FCA has criticised many firms' existing strategies, citing a lack of clear purpose and an absence of detailed actions for making change.
The PRA goes further and is proposing to require firms to publish a strategy specifically promoting diversity and inclusion on the board. It also proposes to clarify expectations on succession planning and board responsibilities for D&I.
New measures on data collection and reporting
PRA firms and certain FCA firms will be required to report D&I statistics on an annual basis - some measures on a compulsory basis, others voluntary.
The FCA has set its threshold for compliance at firms with 251 or more employees (other than limited scope firms). The FCA acknowledges that many firms will not have established systems to collect this data and/or may not have established sufficient trust within employee populations to foster the sharing of this data. There will be many firms with more than 251 employees who do not currently have data collection systems in place and this will therefore represent a significant change.
The scope of data to be collected and reported on a compulsory basis is wide - including age, sex or gender, disability, ethnicity, religion and sexual orientation. Clearly the successful collection of this information relies on employees volunteering it in the first place and the FCA does acknowledge that datasets may be incomplete.
Voluntary data includes gender identity, socio-economic background, parental responsibilities and carer responsibilities.
Both the FCA and PRA are proposing that larger firms would be required to set their own D&I targets where they identify under-representation.
Proposals not taken forward
Both consultations close on 18 December 2023. The FCA's policy statement is expected in 2024, with the rules coming into force 12 months after that.
For further details about what these new proposals may mean for your firm, please contact James Green or your usual Burges Salmon contact.