Financial regulators have released consultation papers outlining strategies to advance diversity and inclusion within regulated financial services, aiming to foster healthier work cultures, combat groupthink, and unlock talent.
Developed by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), the measures seek to fortify the safety and stability of firms while enhancing comprehension of diverse consumer needs. A more diverse and inclusive environment within regulated financial services can lead to improved internal governance, decision-making, and risk management, both regulators reiterated.
The proposals also comprise fresh rules and guidance emphasising that misconduct, including bullying and sexual harassment, poses a threat to a healthy firm culture. This guidance is designed to enable firms to take decisive and appropriate action against employees engaging in such behaviours.
Government-led efforts and voluntary initiatives have already made strides in promoting diversity and inclusion. Key projects like the Treasury’s Women in Finance Charter, the Parker Review, and the FTSE Women Leaders Review are part of this progress, the regulators stated.
While diversity and inclusion are societal concerns, the FCA and PRA recognise the role of regulators when these aspects align with their objectives. Their proposals aim to establish flexible and proportionate minimum standards, elevating expectations primarily for larger firms. The requirements for firms outlined in the proposals include:
Flexibility lies at the core of these proposals, the regulators explained. Most of these requisites, such as target setting, regulatory reporting, and disclosure, apply predominantly to larger firms.
According to the FCA and PRA, the primary objective of the proposed rules is to translate enhanced diversity and inclusion within firms into improved internal governance, decision-making, and risk management. The advancement also aims to bolster the safety and stability of firms, safeguard policyholders, and ensure better outcomes for both markets and consumers.
The consultation period remains open until December 18, 2023, during which regulators invite comments on the proposed approach. The feedback garnered will inform the development of final rules slated for publication in 2024.
“UK financial services has long been a magnet for best-in-class talent globally. Increasing levels of diversity within firms can help attract and unlock talent, supporting the sector’s international competitiveness,” FCA chief executive Nikhil Rathi said.
“Diversity and inclusion play an important role in guarding against groupthink within firms. Firms in which a broad range of perspectives is welcomed and encouraged will manage their risks better, advancing the PRA’s objective of safety and soundness. Stronger diversity and inclusiveness should also make firms more competitive by enabling them to attract a wider pool of talent,” PRA chief executive Sam Woods said.
This new development comes as the FCA revealed that it has witnessed a “concerning increase” in reports of non-financial misconduct, which can include harassment and discrimination, in the wholesale insurance market over the past year.
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