In September 2023, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) published long-awaited proposals to introduce a regulatory framework for diversity and inclusion (D&I) in the financial sector.
The proposals build on the increasing recognition of the need to improve D&I outcomes among regulated firms and are designed to further accelerate D&I change across the financial sector. The proposals aim to help firms understand the practical steps they should take on D&I to meet regulator expectations on this key policy area.
The FCA’s consultation paper sets out why D&I is a regulatory concern, including why it should improve outcomes for markets and consumers by reducing groupthink, supporting healthy work cultures, unlocking diverse talent, and improving understanding of and provision for diverse consumer needs.
The proposals include integrating non-financial misconduct considerations into staff fitness and propriety assessments, the FCA Conduct Rules, and the suitability criteria for firms to operate in the financial sector (FCA Threshold Conditions).
The FCA proposes a broad range of further measures, including requirements for firms to:
The measures suggested are proposed by the FCA to apply differently to firms depending on their number of employees, categorisation under the FCA’s Senior Managers and Certification Regime, and whether they are dual regulated by the FCA and PRA. To reduce regulatory burden, the consultation paper proposes that smaller firms with fewer than 251 employees would be exempt from many of the requirements. For overseas firms, the measures are only proposed to be applicable to the activities carried out from an establishment in the UK.
The FCA states that a policy statement will follow in 2024. The proposed implementation date for the FCA changes is 12 months following the publication of the future FCA policy statement.