Shearman & Sterling LLP | FinReg | UK Regulators Open Discussion on Accelerating Diversity and Inclusion in the Financial Services Sector
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  • UK Regulators Open Discussion on Accelerating Diversity and Inclusion in the Financial Services Sector

    The U.K. Financial Conduct Authority, Prudential Regulation Authority and the Bank of England (as regulator for financial market infrastructure) have published a discussion paper on diversity and inclusion in the financial sector. Feedback to the discussion paper may be submitted until September 30, 2021. It is expected that the FCA and PRA will consult on detailed proposals in Q1 2022 and aim to issue final Policy Statements in Q3 2022. The regulators aim to develop policy, rules and guidance that set clear minimum expectations and note that they will be prepared to use their regulatory powers where a firm fails to meet those expectations. The regulators intend to introduce any new requirements proportionately.

    In the discussion paper, the regulators refer to diversity as diversity of thought (cognitive diversity), defining it as: "bringing together a range of different styles of thinking among members of a group. Factors that could lead to diverse thinking could include, but not limited, to different perspectives, abilities, knowledge, attitudes, information styles, and demographic characteristics, or any combination of these."

    Inclusion is defined as: "the practice or policy of providing equal access to opportunities and resources for people who might otherwise be excluded or marginalised, for example due to demographic characteristics."

    The current U.K. requirements on diversity are sector-specific, resulting in fragmented requirements for different types of firms. The discussion paper is addressed to all U.K. regulated financial entities—banks, building societies, designated investment firms, credit unions and insurance firms, payment services and e-money firms, credit rating agencies, recognized investment exchanges and financial market infrastructure providers. The main discussion points include:
    • The use of targets for representation at Board level. Significant banks, investment firms and some FMIs are already required to set a target for the underrepresented gender at Board level. The regulators ask for views on whether this should be applied to a wider set of firms, and for underrepresentation of other characteristics.
    • The potential for senior manager accountability for D&I. The regulators propose that in most cases, responsibility would fall to the holder of an existing Senior Manager Function, for example, the chairs of the Nominations and Remuneration Committees.
    • Linking remuneration to D&I metrics as part of non financial performance assessment.
    • D&I reporting and training obligations.
    • Mandating D&I policies and the publication thereof.
    • Setting expectations on product governance that specifically consider consumers' protected characteristics or other diversity characteristics.
    • Whether the regulators should consider how a firm's proposed appointment would contribute to diversity in a way that supports the collective suitability of the Board and senior management.
    • Providing guidance on how diversity and inclusion relates to the Threshold Conditions and how the PRA and FCA could consider Board and senior management diversity in assessing whether the firm has appropriate non financial resources and also how non financial misconduct by individuals connected with the firm and discriminatory market practices may influence the assessment of suitability.

    The FCA is separately consulting on proposals to amend the requirements on diversity and inclusion on listed company boards and executive committees.

    View the U.K. regulator's discussion paper on diversity and inclusion in financial services.

    View details of the FCA's D&I proposals for listed companies.

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