UK Finance responds to call for evidence on diversity and inclusion in financial services

This week, UK Finance responded to the Bank of England’s Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) consultations on regulatory changes to boost diversity and inclusion (D&I) in financial services.

The consultation papers were developed in parallel, with the PRA setting out proposals to better link firms’ strategies to D&I while the FCA pursued ways to consider non-financial misconduct, as well as asking some firms to collect, report and disclose certain D&I data.

In our combined response, we reaffirmed the sector’s commitment to recruiting, retaining and promoting the most diverse talent. Not only because it is the right thing to do, but also because by combating group think, it has been shown to produce better outcomes for firms, and customers.

To reflect the individuality and variety of firms across the financial services sector, however, we believe the proposals must include an appropriate degree of flexibility. To ensure they are effective and workable, we have set out recommendations in four areas:

Data privacy

Under the proposals, firms above a certain size (they propose 250 employees, but we think for proportionality it should be 750) will have to report their demographic data to the regulator.

Some of this will be mandatory, some voluntary. However, we think mandatory reporting on areas like sexual orientation, religion and ethnicity could be challenging. Where firms have head offices overseas or employ high numbers of non-UK citizens, they may have cultural differences and different expectations about data disclosure – which could drive lower response rates.

Foreign firms could also have head offices in locations where it is prohibited to collect data on these areas, which may lead to pushback from employees or local ‘GDPR’ legislators, as well as low disclosure rates. Regulators should not assume that in these cases, high levels of non-disclosure or ‘prefer not to say’ reflect a lack of inclusiveness and instead allow these firms to provide a statement that gives the context for their disclosure rates.

Non-financial misconduct

The proposals also require firms to make judgements about non-financial misconduct outside work if it could impact an employee’s workplace fitness and propriety (F&P). Behaviour that is ‘disgraceful or morally reprehensible or otherwise sufficiently serious’, could, the FCA says, indicate this.

This wording needs to be clearer. Firms are being asked to make moral judgements – a highly subjective demand that will lead to a very uneven and varied landscape. So, what is the solution? 

We believe the regulators can come up with examples of conduct outside work that is likely to be relevant to a person’s F&P, perhaps drawing on the FCA’s enforcement cases or instances where the regulator has previously declined/withdrawn a person’s approval due to lack of fitness and propriety.

Target setting

Firms welcome the concept of D&I targets but need clarity and guidance to ensure this does not become a ‘tick box’ exercise or give rise to damaging ‘positive’ discrimination. And it goes without saying that some have a lot do to operationalise these requirements: though some larger firms are already further down the road. Our preference is that the D&I requirements should be phased with strategies and targets mandated a year after the data requirements are introduced. 


Finally, we recommend that instead of reporting on a solo entity basis, firms are given discretion as to which is the most appropriate group for them to report against, for instance, UK-based permanent employees of a group.  

UK Finance now looks forward to following up with the PRA and FCA as they consider feedback. We are keen to work closely with them to make these proposals workable and effective in boosting diversity and inclusion at all levels and all firms.

Read our full response to the consultations here.

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