D&I in FS: how to get a head-start on the FCA and PRA proposals

This is the last post in our series on the UK Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) proposals to introduce a new regulatory framework on diversity and inclusion (D&I) in the financial services sector.  The consultations are now closed but it would be a mistake to wait until the final rules and guidance are published next year before engaging with some of the challenges highlighted in our blog series. 

Strategy, targets and culture

In-scope firms would be wise to start thinking about what a public-facing D&I strategy should look like and how they will satisfy the regulatory expectation of setting “stretching but realistic” targets. Collection of D&I data is soon to have a whole new dimension and firms should already be thinking about what and how data is currently collected, how this might need to be modified and how to resolve potential data privacy challenges.  

Developing and maintaining an inclusive environment is crucial for realising the benefits of a diverse organisation. Now is the time to take stock and consider how your workforce is likely to report against the six inclusion metrics the regulators have suggested firms gather data on. In keeping with the push to become data-led regulators, the FCA and PRA plan to use these metrics to measure the effectiveness of firms’ speak up culture as well as their approach to employee contributions and treatment of employees. 

Non-financial misconduct

Non-financial misconduct and, in particular, the FCA’s responsibility for taking action to curb bullying and harassment in the financial services sector has been grabbing headlines this year. The latest proposals reinforce the FCA’s view that “non-financial misconduct is misconduct, plain and simple”. However, there remain a number of challenging issues that firms will need to carefully navigate. Some will be relevant to the majority of the firm’s workforce; others target more specifically the responsibilities of, and arrangements relating to, individuals approved to undertake a Senior Management Function.  

Governance and risk management

As with the Consumer Duty regime, introduced in July this year, the FCA and PRA proposals include specific Board-level requirements, not just in relation to composition but also with regard to embedding, monitoring and scrutinising the new D&I expectations and requirements. 

Most firms will also need to give serious consideration to how they will meet the regulators’ expectation that D&I be treated as a non-financial risk within a firm’s risk management framework. The current proposals envisage a key role for control functions such as risk and compliance teams and internal audit. Thought will need to be given to fine tuning or amending existing systems and processes and ensuring staff in these functions understand the shift in the regulatory expectations. 

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This content was originally published by Allen & Overy before the A&O Shearman merger