FCA hits pause on D&I
The FCA confirmed to the Treasury Committee last week that it will be hitting pause on the diversity and inclusion proposals set out in its recent consultation but will be pressing ahead with other aspects of the consultation relating to non-financial misconduct.
In September 2023, the FCA and PRA published consultation papers outlining new proposals to boost diversity and inclusion across the sector. These long-awaited consultations followed the regulators’ previous joint discussion paper published in 2021 (read more about the consultations here).
The consultations were a game of two-halves, focussing on: (i) diversity and inclusion; and (ii) non-financial misconduct. For the former, the proposals included new rules and guidance requiring in-scope firms to develop diversity and inclusion strategies, collect, report, and disclose diversity demographic data, and set targets to address under-representation. Whilst many of the D&I proposals in isolation were not new, the scale of them was, and if enacted as proposed, they would have marked one of the biggest attempts by a regulator to shift the dial on D&I in a sector we have seen, and set an example for other sectors, industries, and jurisdictions to follow.
The consultations closed in December 2023 and the regulators committed to publishing a final policy statement in 2024 with new rules coming into force 12 months later. Since the launch of the consultation in September 2023, across different firms, trade bodies, academics and think-tanks, the regulators have received a range of views on the proposals, some which welcomed the D&I proposals but others which raised serious concerns about the appropriateness and effectiveness of the changes.
In March 2024, the House of Commons Treasury Committee’s Sexism in the City inquiry reported a number of concerns regarding the regulators’ D&I proposals, namely that the regulators’ approach to boosting D&I across the sector and requiring firms with 251 or more employees to implement diversity strategies and collect and report on data and set targets could be overly costly for firms and ultimately be treated as another ‘tick box’ compliance exercise. The inquiry recommended that the regulators drop their proposals for data reporting and target setting (read more about the Sexism in the City inquiry here).
In addition, Business and Trade Secretary, and Minister for Women and Equalities, Kemi Badenock, had accused the FCA of regulatory overreach and urged it to rethink its D&I proposals in fear of these being a distraction from firms focussing on economic growth.
Despite the challenges, we had understood that the regulators remained committed to their intentions to boost D&I across the sector and would be responding to the consultation in their final policy statement by the end of this year.
However, in oral evidence to the House of Commons Treasury Committee on 8 May 2024, the FCA indicated it will not be prioritising the data collection and diversity proposals set out in the consultation but will be prioritising its proposals on non-financial misconduct.
“…there were two elements to our consultation. One was on non-financial misconduct and clarifying our guidance, and you recommended that we move ahead with that. We are prioritising our work on non-financial misconduct and being clearer that that constitutes an area where we may be able to take action, and I think that you are familiar with some of the cases.
On the broader data and diversity questions, we had 257 responses, so there has been a very extensive response to the consultation. We are not prioritising moving forward on that at this stage. We need to take the time to understand it.
Of course, you have given us a number of other recommendations, which we were looking at, including engaging with boards and senior leadership, and supporting equality impact assessments for family friendly policies, and you have asked us to do an equality impact assessments on the bonus gap. We also need to think about what data we would need to have to be able to fulfil those recommendations, and that will take some time. The priority right now for us is the non-financial misconduct guidance that you recommended to move forward with.”
- Nikhil Rathi, Chief Executive of the FCA
Of course, this does not mean that the regulators’ D&I proposals will be dropped. The FCA is just noting it needs more time to consider the proposals given the complexity of the matters they are seeking to address and the potential impact the proposals could have on businesses and diversity and equality more broadly across the sector.
Arguably, the timing of a pause is also not surprising, given wider societal and geopolitical events. The current landscape for employers taking positive action to improve diversity, equity, and inclusion within their workforces is under greater scrutiny than ever before (read more about this here) and with the promise of a general election on the horizon and Labour’s plans to introduce a new Race Equality Act and mandate ethnicity pay reporting, it may be that future UK legislative proposals cut across some of the regulators’ D&I proposals.
However, there will undoubtedly be some firms who have already started to plan for the regulators’ D&I proposals who may now also want to pause and reflect. But such work will not be not wasted, as there continues to be an ongoing focus by many organisations and stakeholders to prioritise and improve diversity, equity and inclusion.
In an area where societal expectations can change much quicker than law or regulation can, DEI remains a challenging landscape for employers to navigate.
If you have any questions or would like to discuss these issues with us, please get in touch.
