The Financial Conduct Authority has written to the chairmen of remuneration committees at financial services firms, urging them to review pay data in light of diversity and inclusion and to act swiftly to address any disparities.
In the letter dated today (August 3), the FCA reiterated that increasing diversity and fostering an inclusive environment, where every member of staff is valued for their contributions, was a key element of a healthy work culture.
It said: “We recognise the steps firms have already taken to embed diversity and inclusion but there is much more that needs to be done.
"We urge you to review pay data across all protected characteristics and to act swiftly to address any disparities.”
This letter comes as last month the FCA, Prudential Regulation Authority and Bank of England came together to set out plans to improve diversity and inclusion in financial services.
Towards the end of the month, the FCA also proposed changes to its listing rules as a way of improving transparency on the diversity of listed company boards and their executive management teams.
The regulator is consulting on rules to require companies to disclose annually on a comply or explain basis whether they meet specific board diversity targets and to publish diversity data on their boards and executive management.
In the letter today, the FCA said the role of chairman was "crucial" in ensuring that a firm’s remuneration policies and approach to paying variable remuneration adapted and evolved with the pandemic.
Other areas listed in the letter to review included accountability and non-financial measures, where it urged chairmen to use the Senior Managers and Certification Regime as a tool to ensure high standards of conduct and culture within the firm are met and there is a clear link between behaviours and remuneration outcomes.
"For instances of poor behaviour or misconduct, expost risk adjustments should be made which are appropriate and timely," it wrote.
It also highlighted non-financial measures, which it said should be linked to remuneration.
“During these challenging times, we have observed firms redefining their purpose to support the issues that really matter to them and in the context of environmental, social and governance issues, particularly the ‘social’ element,” the FCA said.
“We expect to see more firms using non-financial measures in scorecards to support ESG factors.”
The FCA said firms with a fiscal year-end of December 31 should submit their remuneration policy statement (RPS) and relevant tables by September 30 2021.
Along with their RPS, firms are expected to provide a short summary of the key points in the RPS with cross-references to the full RPS, including any key changes made in the last year, an explanation of how the firm has assured itself that the overall remuneration policies support the firm’s purpose, business strategy and values and incentivise the right behaviours, and how the firm’s approach to paying variable remuneration will be considered in the continuing context of the pandemic.
The regulator said its supervisors would coordinate the FCA’s approach with the PRA and engage with the firm as required, including providing any feedback.
Meanwhile, the FCA also said it was continuing to engage internationally on remuneration, in particular as a member and as chair of the Financial Stability Board’s Compensation Monitoring and Contact Group (CMCG).
It said in April 2021, the FSB published a peer review of the United Kingdom which assessed the steps taken by UK authorities to implement the FSB Principles and Implementation Standards and to assess the effectiveness of financial sector compensation reforms in the UK.
It added: “While the report is primarily addressed to the UK authorities, firms may find it useful to and consider whether there are any points that they could incorporate into their remuneration policies and practices.”
sonia.rach@ft.com
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