The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have proposed new measures to boost diversity and inclusion (D&I) in the financial services sector, in one of their latest consultation papers published in September 2023 (CP23/20). The aim of the proposals is to increase diversity and inclusion in financial firms, resulting in higher quality internal governance, decision making and risk management, and contributing to improved outcomes for consumers and markets while promoting competition and financial stability. The proposed framework applies to all FCA or PRA regulated firms, although certain requirements are limited to firms with more than 250 employees.
The proposals follow the notable recent allegations involving Odey Asset Management, which resulted in the firm’s counterparties cutting ties with it, and, ultimately, its demise.
Personal conduct and diversity and inclusion continue to become more important topics and focus areas for investors and allocators. If these proposals are adopted, non-financial misconduct would not only carry reputational risk but also regulatory risk, further underlining its importance when conducting due diligence. The risk of non-financial misconduct is considered by perfORM through background checks carried out on relevant individuals and firms as part of our due diligence process.
One of the notable proposals set out in the consultation includes improving the integration of non-financial misconduct considerations into the FCA’s Conduct Rules, and the staff fitness and propriety (FIT) assessments for staff performing a Senior Management Function or certification function.
This could see UK-regulated firms facing stricter rules when dealing with employees guilty of non-financial misconduct and to curb workplace bullying and sexual harassment, resulting in a healthier work environment which is also vital in attracting and retaining the best talent. The proposed rules and guidance aim to ensure that firms are able to take appropriate actions against employees guilty of such non-financial misconduct.
FCA Chief Executive, Nikhil Rathi said “We have taken a lead among regulators in taking a clear stance that non-financial misconduct, such as sexual harassment, is misconduct for regulatory purposes. We’re strengthening our expectations on how the firms we regulate consider such misconduct when deciding whether someone is fit and proper to work within the industry”.
Other diversity policy proposals include, for larger firms, implementing a D&I strategy, setting appropriate diversity targets, collecting and reporting certain D&I data, and recognising a lack of D&I as a non-financial risk requiring appropriate governance measures.
The consultation is open until 18 December 2023 and publication of the final rules is planned for 2024.
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Missed the last bulletin? Click here for the September 2023 edition.