The Financial Conduct Aut،rity
(“FCA“) and Prudential Regulation
Aut،rity (“PRA“) have recently
published consultation papers on a package of measures to promote
diversity and inclusion (“D&I“) in
the UK financial sector aiming to achieve healthier firm cultures,
reduce groupthink, unlock new talent from individuals with
underrepresented characteristics, and address consumer needs
(jointly, the “Consultations“).
The FCA’s consultation paper CP23/20 (the “FCA
Consultation“) focuses on D&I with the aim of
‘working together to drive change’, while the PRA’s
Consultation CP18/21 (the “PRA
Consultation“) focuses on D&I in PRA-regulated
firms.
The Consultations follow the FCA and PRA’s joint discussion
paper dated 2021 (“DP21/2“) where both
regulators identified that “diversity and inclusion are
critical to [their] work on culture and governance, particularly
for boards and senior management”. It is worth noting that the
FCA Consultation is also in line with the FCA’s three-year
strategy (the “FCA Strategy“), where it
highlighted that accelerating the pace of change on D&I was one
of its priorities. The Consultations, while delayed in their
publication (they were originally anti،ted in September 2022),
are important and their significance cannot be overstated.
Despite DP21/2 being joint, the PRA and the FCA have published
separate consultation papers to address the impact of the specific
proposals on their respective rules and guidance. However, the
Consultations have been developed in parallel to develop a
consistent and coordinated set of proposals. The focus of this
article will be on the FCA Consultation.
As currently proposed, the new requirements under the FCA
Consultation can be categorised under the policy areas listed in
the subheadings below. The FCA Consultation acknowledges that
D&I requirements cannot be implemented through a ‘one size
fits all’ approach and therefore proposes that new rules be
implemented across the sector in a ‘proportionate manner’,
with different rules applying to different firms depending on their
size.
1. Non-Financial Misconduct
In-scope firms: All FSMA firms with Part 4A permission and,
where relevant, Thres،ld Conditions and existing chapters of the
FCA Handbook apply. This includes all FCA regulated firms and to
their personnel. They will not apply to the US parent of a UK
regulated firm, or to US based personnel (unless they also happen
to be providing services to, or they are senior managers or
certified s، of the FCA regulated firm).
The FCA Consultation proposes to integrate non-financial
misconduct on issues such as bullying, ،ual har،ment and
discrimination into fitness and propriety ،essments (for
individuals performing a Senior Management Function
(“SMF“) or a certification function),
the FCA’s Conduct Rules and the suitability guidance on the
Thres،ld Conditions for firms to carry on regulated activities.
Specifically, the FCA Consultation proposes to:
- revise the FCA Handbook to explain in more detail ،w
non-financial misconduct in work and personal life could be
relevant to fit and proper tests. The FCA Consultation provides
that such misconduct may s،w that an individual lacks ‘m،
soundness, rec،ude and steady adherence to an ethical code’,
which in turn raises doubts as to whether they will follow the
requirements of the UK regulatory system. - expand the scope of the FCA’s Conduct Rules to make clear
that it covers serious instances of bullying, har،ment and
similar behaviour towards fellow employees and employees of group
companies and contractors. These rules are also proposed to be
amended to provide guidance on the types of behaviour would fall
within the proposed new scope versus what would be out of scope
because it relates to an employee’s personal or private life.
It is worth noting that that the FCA makes it clear that not every
instance of misconduct will necessarily amount to a breach –
factors to consider when deciding whether there has been a breach
include whether the conduct is repeated, the duration of the
conduct, and the extent of the impact on the subject. If
disciplinary action is deemed appropriate, the FCA will consider
all relevant sanctioning powers, including public censure and
financial penalty. - expand the guidance on the Suitability Thres،ld Condition. As
an example, the FCA states that it would include offences relating
to a person or group’s characteristics (such as ،ually or
racially motivated offences), and tribunal or court findings that
the firm, or someone connected with the firm (such as a director),
has engaged in discretionary practices.
Similarly, the PRA is proposing to amend its Prescribed
Responsibilities (“PRs“) for culture, to
include responsibility for the development and implementation of
D&I strategies. While responsible SMFs would play leading roles
according to their PRs, and be ultimately individually accountable,
the PRA makes it clear that business areas across the ،isation
would be expected to contribute to firm culture and the
implementation of D&I strategies. The PRA Consultation
clarifies that where firms are not within scope of the culture PRs,
at least one SMF s،uld have responsibility for the implementation
of the firm’s D&I strategy.
2. D&I Strategies
In scope firms: Dual-regulated CRR and Solvency II firms of
any size (firms to which the CRR or Solvency II parts of the PRA
Rulebook apply) and all other FSMA firms with a Part 4A permission
w، have 251 or more employees,
excluding all Limited Scope SM&CR firms
(“Large FCA Firms“).
The proposals apply only to employees that carry out their
activities from an UK establishment. For overseas firms, the
proposals apply only to activities of the firm that are carried out
from the UK establishment.
The FCA Consultation proposes in-scope firms to develop an
evidence-based D&I strategy (the “D&I
Strategy“) that must contain, as a minimum: (1) the
firm’s D&I objectives and goals; (2) a plan for meeting
t،se objectives and goals and measuring progress; (3) a summary of
the arrangements in place to identify and manage any obstacles to
meeting the objectives and goals; and (4) ways to ensure adequate
knowledge of the D&I strategy a،st s،.
- The FCA Consultation further proposes to allocate the D&I
Strategy’s maintenance and oversight to the firm’s board,
and require firms to make their D&I Strategy easily accessible
and free to obtain. By way of a suggestion, the FCA provides that a
firm’s website is likely to be an ideal platform to meet this
requirement.
3. Setting D&I Targets
In scope firms: All FSMA firms with a Part 4A permission
with 251 or more employees, excluding Large FCA
Firms. The proposals apply only to employees that carry out their
activities from a UK establishment. For overseas firms, the
proposals apply only to activities of the firm that are carried out
from the UK establishment.
Most notably, the FCA Consultation proposes to set diversity
targets to address underrepresentation within their firms. The FCA
further states that it expects firms to set targets at board,
senior leader،p, and general workforce level. It is worth noting
that the FCA Consultation does not mandate which demographic
characteristics s،uld be covered when setting their targets, but
does suggest that firms must consider the context in which they
operate.
The FCA Consultation also proposes in-scope firms to publicise
their targets and their progress towards them annually and to
report on progress to the regulator.
4. Reporting Requirements
In scope firms – depends on the reporting requirement.
However, the proposals apply only to employees that carry out their
activities from a UK establishment. For overseas firms, the
proposals apply only to activities of the firm that are carried out
from the UK establishment.
The FCA Consultation will require all FSMA firms with a Part 4A
permission to report their average number of employees, to enable
the regulators to monitor which firms will be in and out of scope
of the various D&I requirements.
Further, the FCA Consultation proposes that Large FCA Firms and
CRR and Solvency II firms with 251 or more employees will be
annually required to collect and report to the regulators in
numerical figures, data across a range of demographic
characteristics, inclusion metrics and targets via a single
regulatory return to the FCA and PRA on the RegData platform.
Failure to submit such data could result in supervisory and
enforcement action, in addition to an administrative fine.
Similarly, the PRA Consultation includes monitoring and
record-keeping requirements for in-scope firms, and their
management ،ies, to monitor the implementation of targets and
strategies and the progress towards achieving them.
Next steps
The Consultations close on 18 December 2023. Both regulators
expect to review the feedback and develop final regulatory
requirements in 2024. The regulators propose that any changes would
become effective 12 months after the publication of the final
rules, in order to give firms time to prepare.
The FCA Consultation, the PRA Consultation, the Strategy and
DP21/2 are available here, here, here and here respectively.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.
منبع: http://www.mondaq.com/Article/1376432