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United Kingdom: Next steps for diversity and inclusion in financial services – FCA and PRA proposals

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In brief

In this article originally published in Risk & Compliance Journal written by Baker McKenzie employment and financial services regulatory experts, we explore the diversity and inclusion proposals recently put forward by the UK financial services regulators. 

Key takeaways

  • Research in financial services has demonstrated a positive link between diversity at senior levels and positive outcomes. However, the financial sector has some way to go: while some progress has been made, large gender and ethnicity pay gaps exist and there remains a lack of diversity at leadership levels.
  • The Financial Conduct Authority and the Prudential Regulatory Authority have released consultation papers proposing to introduce a new regulatory framework on diversity and inclusion in the financial sector. The proposals are substantially the same but the PRA framework contains additional requirements for dual-regulated firms not included in the FCA’s proposals, most notably in relation to senior management accountability.
  • Certain firms will need to establish D&I strategies, set appropriate targets for each of the board, senior leadership and the whole workforce, and report a range of D&I-related data annually to regulators.
  • Data collection is therefore a key step to identifying areas for intervention, setting appropriate targets and measuring progress. Mandatory characteristics on which employees would be asked to for consent to data collection include age, sex or gender, ethnicity, disability, religion and sexual orientation.
  • New FCA guidance is proposed that would treat a lack of D&I as a non-financial risk to be addressed across a range of relevant functions, with firms being given flexibility to implement the guidance in a way that is aligned with their business and governance.
  • The FCA recognises that non-financial misconduct may discourage employees from speaking out about concerns, while the PRA has stated its existing expectation that conduct such as bullying and harassment is relevant to assessments of fitness and propriety. The FCA proposals include a number of amendments to explicitly embed non-financial misconduct in its handbook and in the Conduct Rules.
  • This article first appeared in volume 12 issue 6 of Compliance & Risk Journal.

Click here to access the full briefing. 

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Author

Monica Kurnatowksa is a partner in the Firmā€™s London office. She is recognised by The Legal 500 and Chambers UK as a leading individual. Chambers say she has ā€œimpressive experience of handling complex employment disputes and advisory matters for major clients. She is known for her expertise in trade union matters.ā€ "The breadth of her experience is phenomenal." "She is an outstanding lawyer who provides a first-class service while juggling the intense demands of running high-profile matters on behalf of her clients. She is unflappable, courteous and extremely knowledgeableā€. Monica is a member of the Consultation Board of PLC Employment On-line and is a regular speaker at internal and external seminars and workshops.

Author

Zelander is a mid-level associate in the Employment Department of Baker McKenzie in London. Zelander joined the Firm as a trainee in September 2014. She has recently been on a four-month secondment with Facebook as part of their EMEA employment legal team.

Author

Kimberly Everitt is Baker McKenzie's knowledge lawyer for Financial Services Regulation & Enforcement, covering the EMEA region, and brings over a decade of experience to the team in both knowledge and fee-earning roles. Prior to joining Baker McKenzie, Kim held roles specializing in contentious financial services regulation knowledge, and her fee-earning roles covered non-contentious regulation in the private equity and general financial services sectors.

Author

Rachel Farr is a Senior Knowledge Lawyer in Baker McKenzie, London office.

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