Across our Financial Regulatory group, Employment & Incentives practice and Diversity Faculty, Linklaters has a range of offerings that support financial services firms in developing D&I within their organisations, and can help to pre-empt, manage and mitigate legal and regulatory risk. Designed for financial services firms, our new Diversity in Financial Services webpage contains commentary, materials and resources to help firms stay up to date and navigate their way through some of the key issues in this space. 

Why now?

The launch of our Diversity in Financial Services webpage comes at a time when regulators and other bodies are considering how D&I can be incorporated within their monitoring, supervisory and enforcement powers.

Diversity of thought, when coupled with an inclusive culture, is seen as supporting better decision-making, better outcomes for firms and customers and enhanced risk management. Building on existing initiatives by external agencies, and their own engagement with the financial sector on the topic, financial regulators are clear that there is now a regulatory imperative for firms to manage and promote diversity and inclusion effectively. Firms that fail to make and evidence meaningful progress in this area will in future face enhanced supervisory scrutiny and potential regulatory action.

In just one month (July 2021), we saw:

• The FCA, PRA and Bank of England publish a discussion paper (DP) on their plans to monitor, track and improve diversity and inclusion in regulated firms. The DP sets out a wide range of policy options across a range of topics, including: (i) tone from the top; (ii) setting targets for board composition and succession planning; (iii) individual accountability; (iv) expressly folding D&I into SMCR requirements; (v) firm-wide policies and practices; (vi) linking progress on D&I to remuneration; (vii) progressing diverse representation; and (viii) introducing new mandatory disclosures relating to D&I. There are also proposals to clarify the concept of NFM and its role in assessing individuals. You can read more about the discussion paper here;
• The FCA publish a consultation on proposals to boost disclosure of diversity on listed company boards and executive committees. It proposes to introduce a requirement for listed companies to disclose a ‘comply or explain’ statement on whether they have achieved certain targets for gender and ethnic minority representation on their boards, as well as data on the make-up of their boards and most senior level of executive management;
• The Financial Services Skills Commission launch an industry Inclusion Measurement Guide to improve and develop inclusion data metrics and analysis across UK financial services firms. 

The various proposals seek to introduce greater transparency around D&I across the sector. As D&I will become a clear regulatory risk issue, firms will need to develop ways to monitor, manage and encourage D&I that work in the context of their business and organisation. How firms manage this will be of as much interest to the FCA and PRA as any of the more ‘established’ drivers of risk. At an individual level, D&I will become relevant factor to SMF suitability assessments. In more extreme cases, senior management diversity may become a relevant factor to whether firms meet the Threshold Conditions. Just as the SMCR changed the landscape for senior individuals, these D&I proposals have the potential to significantly shift the dial on the importance placed on fostering D&I across financial services.

What next?

Our Diversity in Financial Services webpage contains materials, commentary and resources for financial services firms. We will also be hosting a series of webinars and events on these topics. If you would like to be added to our dedicated mailing list to receive our publications and invitations, and/or would like to speak to us further about any of these issues, do get in touch.