FCA Consultation Papers On Diversity & Inclusion

The Investment Association issues final response

The IA responded to the consultation papers (CPs) on diversity and inclusion (D&I) in the financial sector by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) (available here and here). These CPs follow an initial Discussion Paper in July 2021 and contain recommendations and requirements which will impact current approaches to D&I for many firms.

While the FCA and PRA papers do differ in some areas, they are broadly aligned across the key proposals.

We submitted a detail response on behalf of members following three guiding principles:

1. The focus should be on outcomes rather than a prescriptive approach:

The IA emphasises the importance of fostering an inclusive culture in the financial services industry. The focus is on achieving equity in recruitment, career progression and attracting diverse talent. A robust Equity, Diversity, and Inclusion (EDI) strategy, driven by data, is considered essential for evidencing efforts. The IA supports the proposal to make EDI strategy mandatory but advocates for a non-prescriptive, outcomes-based approach.

2. Data should only be collected to fulfil a clear and defined purpose:

The IA underscores the need for clarity in the purpose of data collection, including the regulators' plan for using the data and how the mandated collection and reporting of specific data characteristics align with their objectives. The importance of articulating the purpose and use of data is highlighted to build trust and encourage voluntary disclosure. The industry-wide EDI survey conducted by the IA demonstrates a correlation between data disclosure and meaningful use, emphasising the need for purpose-driven data collection. Without clarity, firms may face challenges in obtaining comprehensive data disclosure.

3. Any measures should be able to be implemented in a proportionate and effective way:

The IA advocates for flexibility in implementing EDI strategies within large firm groups, cautioning against prescriptive methods that may introduce complexities. The proposed entity-based reporting is misaligned with the governance of large groups, where culture and reporting typically occur at the group level. Mandating targets and public disclosures may not achieve desired outcomes and may expose firms to liability. Furthermore, additional clarification would be welcomed to ensure a consistent industry-wide approach to non-financial misconduct.

The underestimated implementation costs could divert resources from meaningful EDI work. The IA advocates for a flexible approach tailored to diverse industry contexts.

Our full response can be found here.

Establishing an inclusive workforce that promotes equitable entry and progression and fosters diversity is a shared priority for both the IA and our members. We are committed to driving a forward-looking, responsible and inclusive investment industry and to working with the regulators to find effective ways to achieve meaningful change.

For more information, please contact Shrena Fraser Johnson.