FCA and PRA propose D&I reporting measures

The FCA and PRA have released consultation papers, which include proposals for more rigorous D&I reporting, predominantly for larger regulated firms.

The proposed rules and guidance aim to promote a healthy work culture, outlining behaviours such as bullying and sexual harassment as examples of misconduct.

Which firms are impacted?
In scope of the proposed framework are all firms with a Part 4A FSMA permission. Further requirements are applicable to firms with 251 employees or more. All CRR and Solvency II firms will be in scope of the proposed D&I strategies. Limited Scope SM&CR firms are exempt from any additional requirements.

Certain requirements outlined in the consultation papers include the development of D&I strategies, target setting and data reporting on certain characteristics.

Sophie White, partner in employment at Eversheds Sutherland, commented on the scope of the proposal: “In the consultation, the regulators have recognised the importance of proportionality, and that smaller firms (250 employees or less) and Limited Scope firms should not be subject to the same requirements, for example mandatory reporting of certain diversity data, strategies and targets. Interestingly, though – and importantly – rules on non-financial misconduct would apply to all firms whatever their size. The paper proposes that it will specifically include non-financial misconduct within the Conduct Rules, Fit & Proper Assessments and the Threshold Conditions. Until now, non-financial misconduct has been widely referred to in FCA and PRA speeches, but no changes [had been] made to the rules themselves, leading to some uncertainty for firms depending on the circumstances of the misconduct and their own interpretation of the regulatory framework. The paper sets out detailed and specific proposed changes to the rules on this topic.”

The context
The consultation papers build upon the FCA, PRA and BoE’s July 2021 discussion paper, which considered the use of D&I targets and metrics in the financial sector.

Matthew Nunan, partner at Gibson, Dunn & Crutcher and former FCA head of wholesale enforcement, provided some initial feedback on the consultation: “Some statements cause concern. Firms are required to ask certain questions of their staff but where staff decline to answer, the PRA states this could indicate a lack of inclusiveness. Similarly, targets must be set and whilst they may be missed, this could lead to regulatory pressure. Neither of these approaches is necessarily wrong, but could easily lead to box-ticking or pressure simply to ‘get the numbers up’ rather than a more nuanced, thoughtful approach.”

Firms are encouraged to fill in the online response form to provide feedback on the consultation, which closes on 18 December 2023. Final rules are due to be published in 2024.