Diversity, equity and inclusion are firmly on the Financial Conduct Authority's radar, with the City watchdog expected to bring out its draft rules on how regulated firms need to address DE&I.
According to a law firm which has been working with advice businesses on how to interpret and get ready for regulation around diversity, equity and inclusion, the FCA is expected to bring out its draft rules, with a strong focus on how businesses gather and interpret and use data to improve DE&I.
Sophie White, partner at Eversheds Sutherlands, specialises in human resources and employment law. She said she had spoken to several advisory businesses about what the regulator may want and how to prepare for the incoming rules on DE&I.
She told FTAdviser the first discussion paper was very wide-reaching, and touched on everything from data-gathering, reporting and D&I audits, to conduct questions and recruitment.
But the fact this had been published in 2021, and it was now 2023, suggested the FCA and fellow regulators were taking time to make sure that any draft rules would be proportionate and workable for the whole variety of regulated companies that fall into its remit.
She said: "It appears the FCA, the PRA and the Bank of England have taken their time, and been thoughtful about how to address DE&I in regulated financial services."
In terms of the work that is needed to improve DE&I across UK financial services, White said data would most likely be the key focus for the regulator.
She said: "In our work with financial services companies we often discuss the need to reset and re-address how to collect the data that is needed. Engagement with staff is key to increasing return rates and there is likely to be a key focus on how data is collected, used and presented back to the regulator."
There is also going to be some element of cultural crossover with the consumer duty rules.
White explained: "DE&I ties in with the consumer duty rules, which are coming into effect in July this year. It's not yet clear where the regulator will land in terms of draft policy rules on diversity, but it is likely to not be prescriptive in terms of driving behavioural change.
"What we do expect is some clarification on what the regulator expects firms to report on in terms of their data. Perhaps there might be some guidance on awareness and how to shift the dial on recruitment, for example."
However, White said it was also unlikely the FCA would be making this a matter for enforcement, certainly not at this early stage.
She added: "We don't expect there will be immediate strong sanctions for firms. It may be helpful to look at how gender pay gap reporting works in practice, which does not include any sanction even where an employer shows the gap has not changed or even become worse.
"But we get the impression there will be more carrot, less stick; and more nudges towards tracking the positive impact of work done to improve DE&I."
A spokesperson for the FCA said: “We believe that increased diversity and inclusion can result in improved governance, decision-making and risk management within firms, a more innovative industry, and products and services better suited to the diverse needs of consumers.
“While the industry has made some progress on diversity and inclusion, we want to work with firms to increase the pace. We will set out proposals for consultation later this year.
“We also continue to focus on culture in firms, including how they respond and react to instances of poor behaviour.”
Alongside the Prudential Regulation Authority and the Bank of England, the regulator previously published a discussion paper in July 2021 on diversity and inclusion in financial services.
The FCA is expected to consider the responses to this, together with the BoE and the PRA, to produce proposals for consultation later in the year.
simoney.kyriakou@ft.com
