FS firms should test diversity data ahead of UK regulators’ rules, warns lawyer

The regulators of the finance industry, the FCA and the PRA, have published consultation papers setting out their proposals for increased diversity and inclusion in the sector. In detailed consultation papers they deal, among other things, with the issue of bullying and harassment – which remains a serious problem in the – and send a clear message firms that they expect action to be taken against individuals who engage in bullying and sexual harassment, making a direct link with the ‘fit and proper person’ test.

On that point, the proposals from the FCA and PRA include new rules and guidance to make clear that non-financial misconduct, such as sexual harassment, will be treated misconduct for regulatory purposes. It’s an issue we covered in the programme last week with employment lawyer Anne Sammon explaining why that approach could pose difficult questions for firms in the sector in terms of judging whether an issue is serious enough to be included in a reference and how, if it is, it could end someone’s career in the sector. 

Anne covers that issue in more detail in her Out-Law article ‘UK regulators’ diversity plans for finance industry’ where she also explains what the regulator’s want to see in terms of strategy and reporting. So, in scope firms will be required to develop an evidence-based D&I strategy that takes account of their current progress on D&I. Strategies must set D&I objectives and goals; detail a plan for meeting them and measuring progress; and firms must ensure there is adequate knowledge of this strategy amongst staff. The firm’s board will be responsible for maintenance and oversight of the strategy, including reviewing it to ensure it remains appropriate and effective. Firms will have to report to the FCA each year on progress in relation to age; sex or gender; disability; ethnicity; religion, and sexual orientation.

So, what about those reporting requirements? This is just a consultation, draft rules, nothing is in place yet, so what, if anything, should firms be doing now? It’s a question I put to Anne:

Anne Sammon: “This is likely to only come into force in 2025 and so I know that a lot of firms will be sat there thinking, well, that's still some time off, we don't need to start worrying about this now, I have a contrary view in so far as that's the first point where you have to provide data to the regulator. If I was at an organisation, I wouldn't want that to be the first time that I'd run that data. I'd want to know in advance what the likelihood was that that would show something potentially problematic. Also, we know from experience, that quite often this exercise of getting data from employees requires a whole exercise around hearts and minds in terms of, we will do the right thing with this data, we're not intending to use it for kind of nefarious purposes, and that will take time, and the first  time you run that data exercise, you may get lower responses than the second time you run it. So, if I was a firm, I'd want to be looking at what data we're collecting now, what we're required to collect under these new proposals, and kind of working out where the gaps are so that you can start to address those in your next data collection exercise, rather than waiting for 2024/2025 and suddenly having a bit of a panic about what the results show.”

Joe Glavina: “Just a couple of follow up questions on that, Anne. Are we working with clients in this sector on this and is our D&I consultancy Brook Graham involved in that work?” 

Anne Sammon: “Yes, we've worked with a number of firms on looking at their data collection exercises. The real challenge comes for those firms that work globally because there are lots of different requirements in lots of different jurisdictions in terms of data privacy, and considering where the data is held, that can potentially impact. Those are very big exercises that require quite a lot of assistance but the bit that we expect UK firms to be focused on is that cultural piece around how do we create a safe environment where employees can provide us with this data, and be reassured that we will do the right thing? That’s where our work in conjunction with Brook Graham becomes so important because it's not just about what's the legal requirement, it’s also about, from a D&I perspective, how do we create the right culture and the right environment to allow people to provide us with the data that we need?”

Joe Glavina: “Finally Anne, can I ask you about target-setting. It’s clear that from the consultation papers that the regulators see that as being important and they’ve set out a number of proposals in those papers. Is there anything that jumps out at you?” 

Anne Sammon: “One of the requirements that just applies to those firms that are dual regulated is a requirement to not just set targets, but to set targets in relation to numbers of women, and ethnicity data, and to report on progress on an annual basis, and to justify why you set those targets. What we have seen over the last couple of years is there was a real focus on race a couple of years ago that has sort of dwindled out, and so firms have not made as much progress, generally, as they would have hoped to on the race piece and if I was a firm I would want to be really focused on what we're doing on that, if I'm dual regulated, because that's data that I am going to have to share with the regulator and also publicly - I'm going to have to share those targets publicly and where our progress is. So, that's a real opportunity to make a real difference and we are launching a new offering around that race leadership piece and are able to use our extensive experience on race issues to help clients to really move the needle in terms of their numbers on race.”

Anne mentioned our offering around race leadership and, to update you, that work is now in its final stages – we’ll have more on that for you in a fortnight. Meanwhile if you’d like to watch last week’s programme and see the interview with Anne talking about that link between non-financial misconduct and the ‘fit and proper person’ test it’s available for viewing now from the Out-Law website. That’s ‘Regulators’ diversity plans for FS sector pose difficult questions for firms, says lawyer’ and we’ve put a link to it in the transcript of this programme for you.

LINKS
- Link to CP18/23 – Diversity and inclusion in PRA-regulated firms
- Link to Out-Law article: ‘UK regulators’ diversity plans for finance industry’