The U.K.’s financial authorities — the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) — are proposing measures to boost diversity and inclusion in the financial services sector.
The regulators published consultation papers setting out proposed new rules and guidance that seek to set certain minimum standards for the industry. The proposals would also impose more specific requirements on larger firms, including requirements to develop a diversity and inclusion strategy, to report and disclose certain data on diversity, and to set targets to deal with under-representation of certain minority groups.
The proposals would not impose diversity targets on the industry overall, leaving it up to firms to establish their own targets.
“The proposed rules aim to see increased diversity and inclusion in firms translate into better internal governance, decision making and risk management. That contributes to promoting the safety and soundness of firms, policy holder protection and better outcomes for markets and consumers,” the regulators said in a joint notice.
Among other things, the proposals aim to combat the lack of gender balance in the industry. The regulators reported that recent data indicates only 12% of fund managers are female, and that women account for just 19% of executives in the banking and capital markets sectors.
The regulators also want to address the problem of “groupthink on boards [that] has been a shortcoming contributing to serious problems at firms.”
“For U.K. financial services to be competitive and for the companies in it to be well run with healthy work environments, it’s vital they attract, retain and promote the best talent,” said FCA chief executive Nikhil Rathi in a release. “The data suggests this isn’t happening. Our proposals will encourage the largest firms to put in place plans and report against their delivery.”
In addition to improving diversity within the industry, the proposals also include guidance to ensure that firms take action internally against bullying, sexual harassment and other forms of workplace misconduct that represent a regulatory risk.
“We have taken a lead among regulators in taking a clear stance that non-financial misconduct, such as sexual harassment, is misconduct for regulatory purposes. We’re strengthening our expectations on how the firms we regulate consider such misconduct when deciding whether someone is fit and proper to work within the industry,” Rathi added.
The deadline for feedback on the consultations is Dec. 18.
The regulators said the they intend to issue final rules in 2024, and anticipate giving firms a year before the new rules take effect.
In Canada, regulators recently completed a consultation on diversity among issuers generally, which set out competing visions among members of the Canadian Securities Administrators (CSA) when it comes to reporting on diversity in corporate boardrooms and executive suites.
It remains to be seen whether the CSA will reach a consensus approach on diversity disclosure.