The financial sector is set to undergo a strategic shake-up as UK governing bodies, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), announce new diversity, equity and inclusion (DE&I) regulations.
These regulations, which seek to promote more inclusive work cultures, reduce groupthink and utilise untapped diverse talent, provide a standardised DE&I approach for workplace practices in the across the financial sector.
This new set of regulations may come as a welcome change for many, as, for example, 66% of ethnic minority employees working in UK financial services have experienced discrimination at some stage in their careers. In addition, the FCA estimated that the finance sector won’t achieve gender equality until the year 2107, with just 19% of C-suite positions in finance being held by women. Furthermore, figures published by the Chartered Institute of Personnel and Development (CIPD) showed that 40% of lesbian, gay and bisexual employees experienced harassment in the workplace.
In this article, Dan Robertson, MD of FAIRER Consulting, explores the details of the new regulations, discussing its key provisions and what it means for organisations, possible associated challenges, and what businesses need to do to prepare for this strategic change.
In September 2023, the FCA and PRA published consultation papers (CP23/20 and CP18/21), which sought to boost diversity and inclusion within the financial sector. The new regulations are set to come into effect in 2025, and aim to improve understanding of diverse consumer needs, improve internal workplace culture and governance, and enhance decision-making and risk management.
The regulations set out new rules to standardise policies and guidance around non-financial misconduct, such as bullying and sexual harassment, encouraging firms to take appropriate action against these behaviours and maintain a healthy workplace culture.
Below are the key provisions within the regulations:
One of the fundamental provisions of the FCA/PRA requirements relates to mandatory demographic reporting. For firms with more than 251 employees, the FCA and PRA require the comprehensive collection of employee data, including the following characteristics:
This detail-oriented approach to data collection aims to obtain an in-depth view of the workplace, allowing firms to drill data down and spot patterns, for the purpose of promoting a culture of transparency and accountability. However, it should be noted that the “prefer not to say” option will be available to employees.
The new requirements sets out to incorporate non-financial misconduct when assessing “fitness and propriety” for certain roles. In other words, issues such as bullying, sexual harassment and discrimination will be inspected alongside conventional employee assessments, such as competence. This policy therefore supports a shift towards workplaces that are physically and psychologically safe, where employees feel respected, supported and valued.
The regulations call for firms to utilise evidence-based strategies in order to promote DE&I initiatives. Organisations are therefore expected to outline their DE&I objectives and targets, plans for meeting said targets, and information on how these targets will be measured. To reduce risk of discrimination, organisations should establish open communication between HR and DE&I leads, and targets should align with wider DE&I strategy and address specific underrepresentation issues.
Furthermore, organisations are required to publish these targets annually to demonstrate the firm’s commitment to cultivating a diverse and inclusive culture.
Acknowledging the importance of measuring employee sentiment, the regulations calls for employee surveys to contain specific inclusion questions. As with objectives and targets, firms will be required to publish the results of these surveys annually to disclose DE&I progress and to hold them accountable.
The table below summarises the objectives of the new regulations, alongside steps for measuring success:
|
Objective |
What will this achieve? |
How will we measure success? |
|
A healthy culture |
Higher standards of conduct |
|
|
Reduced groupthink |
Improved decision-making, risk management and more effective challenge |
|
|
New talent unlocked |
Widen the sector’s talent pool and help make the UK financial sector a more attractive place to work and do business |
|
|
Greater understanding of and provision for diverse consumer needs |
Increased competition on product innovation and products and services that better cater for a diverse consumer base |
|
While the new requirements seeks to adopt a culture of accountability and transparency in the workplace, it also presents some challenges for organisations seeking to observe its principles.
First, there is concern regarding the prescriptive nature of the regulations and its impact on promoting meaningful change. The mandatory data collection policies outlined by the FCA / PRA should be considered benchmarks for progress rather than a box-ticking or quota-filling exercise.
Second, organisations should keep transparency at the forefront of any hiring and promotion decisions, and strategies should seek to encourage applications from underrepresented groups to enhance diversity. While positive action can be legally leveraged to uplift employees from underrepresented or disadvantaged groups, organisations must be mindful not cross over into unlawful positive discrimination.
There are several ways financial firms can prepare for the impending requirements:
FAIRER Consulting offers customised DE&I solutions and strategies based on the specific needs of your business. Our expert consultants have worked with over 200 businesses worldwide, guiding organisations through strategic planning for long-term DE&I success.
Explore our existing consultation services, such as Developing a DE&I strategy or our Take5 policy review & business audit. Alternatively, get in touch to see how we can help with a customised solution. Our specialist team is here to help you.