In this article we look at the recent announcements and make some suggestions of actions firms can consider in response, which range from starting to collect diversity data to taking positive action steps to overcome disadvantages suffered by under-represented groups.
What is the regulators’ position?
Back in 2021, the FCA, PRA and Bank of England published a joint Discussion Paper (DP) on how they could accelerate the pace of meaningful change on D&I in the financial sector. The DP closed for comments in October 2021. In the same month, the FCA sent a voluntary diversity data collection survey to all FCA and PRA dual-regulated firms, a sample of FCA solo-regulated firms, and a selection of Financial Market Infrastructure firms. The survey asked for the firms’ position on D&I data collection and feedback on challenges they experience, or anticipate experiencing, when collecting D&I data.
The cover email to the survey made it clear that the FCA is seriously considering implementing D&I data reporting beyond the new Listing Rules introduced in April 2022. These required in-scope firms to publish numerical data on the sex or gender identity and ethnic diversity of their board, senior board positions and executive management. We don’t yet have an update on what the FCA had in mind for reporting below executive level.
Earlier this month, the FCA published an update on the DP stating that they are carefully considering responses and are developing proposals for consultation in 2023.
In the meantime, the FCA has published its findings of its multi-firm review on how financial services firms are designing and embedding D&I strategies and an overview of initiatives to improve D&I. The FCA stated that this work had three goals:
- “To give firms and others a picture of the current position, allowing leaders to consider where initiatives might be relevant in their own firms.
- To encourage further industry action.
- To help us to develop a supervisory approach that we can use as the basis for future engagement with firms.”
What’s now very apparent is that the FCA thinks firms have more work to do in terms of D&I. While the surveyed firms were passionate about making progress and had implemented a number of thoughtful initiatives, they lacked an effective strategy and a clearly articulated purpose oriented to achieving goals. The FCA also felt that firms were not fully capitalising on the data they collect to identify the best remedies, nor tracking which remedies are most effective.
So what should your firm be doing?
While there is no current requirement for mandatory D&I data reporting (except gender pay gap reporting and executive-level reports for certain firms noted above), the regulators’ direction of travel is clear.
Firms would therefore be wise to consider taking the opportunity now, before any mandatory rules come into force, to assess their D&I strategies.
If your firm does not currently collect any diversity data, now might be a very good time to consider implementing a D&I data collection project.
If your firm already collects diversity data, but only for limited diversity characteristics, or only on an anonymous basis, you may wish to consider how much more you can achieve by collecting more types of diversity data on an identifiable basis. Such a data set would allow you to:
- take a snapshot of the diversity of your workforce (including any applicants)
- monitor diversity characteristics against recruitment, pay, retention, promotion and attrition, as well as against any engagement survey results you have
- identify where issues arise
- put in place remedies to address those issues
- measure the impact of the remedies taken.
This would more than meet the criticisms in the FCA’s multi-review findings.
If your firm has a full D&I collection process in place, is there even more you could be doing? For example, have you considered collecting data on socio-economic background, which can have just as much of an impact on an individual’s progression as their gender or race.
Any D&I project you implement has both employment and data protection law implications so it’s prudent to take advice at a planning stage of the project to avoid legal and cultural pitfalls. Once you’ve implemented the project and analysed the data, you may also wish to take advice before implementing remedies to ensure that any positive action steps you are proposing to take don’t constitute unlawful positive discrimination - it’s a fine line.
Our team has experience of scoping, planning and implementing new D&I projects for financial sector clients, reviewing existing projects and advising on positive discrimination issues, both in the UK and around the world. Do get in touch if you think we can help.
