FCA consultation on diversity and inclusion: applying the breaks on data gathering, D&I strategies and targets

In Autumn 2023 the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) announced a joint consultation (CP23/20 and CP18/23) on proposals to increase diversity and inclusion in financial services.

The proposals consisted broadly of (i) the introduction of data gathering and reporting by firms of a certain size, alongside the requirement for firms to implement diversity and inclusion strategies and targets and (ii) clarifying the approach to “non-financial misconduct”, which includes harassment, bullying, and discrimination.  

While giving oral evidence to the Treasury Committee in early May, the FCA has confirmed that it will not be moving forward with its data gathering and diversity target proposals for the time being – an announcement, which is likely to come as a significant relief for firms across the financial services sector. 

This follows a heavy volume of responses to the consultation from firms across the sector, and a mixed response to the proposals, with a number of firms voicing concern about the cost of compliance and of potential “over-reach” by the regulator.  

The Treasury Committee also expressed concern about the proposals in its recent report, Sexism in the City, in which it recommended that the FCA and PRA drop the prescriptive plans for “extensive data gathering and target setting” which in its view would likely be treated as another ‘tick-box’ compliance exercise, and instead focus their efforts on ensuring that the boards and senior leadership of firms take greater responsibility for improving diversity and inclusion.

While the news may come as a relief to some firms, this should not be interpreted as the FCA shifting its focus away from diversity and inclusion. The FCA has confirmed it is proceeding with its proposals on non-financial misconduct “at pace” and that it will also be taking the time to consider the Treasury Committee’s wider recommendations, for example around engaging leadership, and equality impact assessments for family friendly policies and the gender bonus gap.

And while data gathering and target setting may now be less pressing, firms may still want to consider adopting some of the proposed measures as part of their own internal efforts to better understand their workforce and increase inclusiveness, particularly ahead of the new duty to prevent sexual harassment which will come into force in October 2024 and proposed Labour reforms which would include the introduction of ethnicity pay gap reporting.

The FCA and PRA intend to publish policy statements to CP23/20 and CP18/23 in the second half of 2024. These will come into force one year after publication of the policy statements and the final regulatory requirements to give firms time to prepare. 

If you would like to speak to one of our team about the FCA’s proposals or what your firm should be doing to prepare for upcoming legislative changes, please contact Chris Holme and Shadia El Dardiry.