The Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority have published consultation papers, in which they say: “Increased diversity and inclusion in regulated financial services firms can deliver better internal governance, decision making and risk management.”  

They add: “The proposals include new rules and guidance to make clear that misconduct such as bullying and sexual harassment poses a risk to healthy firm culture.”  

The regulators say their proposals “set flexible, proportionate minimum standards to raise the bar, placing more requirements on larger firms”.  

Their guidance for firms includes:  

• Develop a diversity and inclusion strategy setting out how the firm will meet its objectives and goals  
• Collect, report and disclose data against certain characteristics  
• Set targets to address under-representation  

FCA chief executive Nikhil Rathi points out: “For UK financial services to be competitive and for the companies in it to be well run with healthy work environments, it’s vital they attract, retain and promote the best talent.   

“The data suggests this isn’t happening. Our proposals will encourage the largest firms to put in place plans and report against their delivery.  

“UK financial services has long been a magnet for best-in-class talent globally. Increasing levels of diversity within firms can help attract and unlock talent, supporting the sector’s international competitiveness.  

Rathi says: “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.”  

PRA chief executive Sam Woods adds: “Diversity and inclusion play an important role in guarding against groupthink within firms.   

“Firms in which a broad range of perspectives is welcomed and encouraged will manage their risks better, advancing the PRA’s objective of safety and soundness.”  

Eversheds Sutherland employment law partner Sophie White points out: “In the consultation the regulators have recognised the importance of proportionality, and that smaller firms — 250 employees, or less — and limited scope firms should not be subject to the same requirements, for example mandatory reporting of certain diversity data, strategies and targets.   

“Interestingly, though – and importantly – rules on non-financial misconduct would apply to all firms whatever their size.   

White adds: “The consultation paper proposes that it will specifically include non-financial misconduct within the conduct rules, fit & proper assessments and threshold conditions.   

“Until now, non-financial misconduct has been widely referred to in FCA and PRA speeches, but no changes made to the rules themselves, leading to some uncertainty for firms depending on the circumstances of the misconduct and their own interpretation of the regulatory framework.” 

The regulators say their consultation is open until 18 December, with final rules due to be published next year.