Search Ocorian

Technical insights: diversity & inclusion in the financial sector

Technical insights: diversity & inclusion in the financial sector

16 November, 2023
Global Regulatory Reporting

What is Consultation Paper CP23/20?

On the 25th of September, the Financial Conduct Authority (FCA) released Consultation Paper CP23/20 which outlined their continued efforts towards achieving a set of minimum standards for diversity and inclusion (D&I) within the UK’s financial services industry.
The FCA believe that greater diversity and inclusion can create better outcomes for both consumers and markets and by understanding diverse consumer needs, firms can create healthier working cultures.

What firms does Consultation Paper CP23/20 apply to?

The proposed requirements will apply to all firms with Part IVA FSMA permission. Larger firms with 251 or more employees will be subject to more prescriptive requirements.
The FCA request that firms respond to their questionnaire by 18th December 2023. 

What is the proposed FCA framework under the consultation? 

Policy proposals What will this look like in practice?
Non-financial conduct All firms authorised under the Financial Services and Markets Act (FSMA) with a Part 4A permission* non-financial misconduct will become embedded into how firms assess the fitness and proprietary (FIT) of approved individuals as well as the application of the Conduct Rules. 
Threshold conditions The FCA will consider non-financial misconduct to be assessed against the Threshold Conditions of Suitability to ensure firms are addressing discriminatory practices that can act as a barrier to undertaking regulated financial services activity.
Code of Conduct  Code of Conduct rules will look to introduce how these are applied to a member of conduct rules staff when not directly carrying out business with a customer or counterparty, such as towards fellow members of the firm’s personnel.
Data reporting

All FSMA firms with a Part 4A permission with 251 or more employees
have additional reporting obligations, excluding all Limited Scope
SM&CR firms.

All firms will be required to report data to the FCA, at least annually covering the total number of employees and a breakdown of those employees by varying sub-categories. This excludes Limited Scope Firms.

D&I strategies

All other FSMA firms with a Part 4A permission that have 251 or more
employees, excluding all Limited Scope SM&CR firms.

Larger firms will be encouraged to take a proactive approach towards D&I through setting up D&I strategies. As a minimum, these must include  objectives and goals, a plan for meeting those goals and measuring their progress, a summary of the arrangements in place to manage the obstacles to meeting the objectives and goals and ensuring personnel have adequate information regarding the firms D&I strategy.

The FCA will not impose a requirement on how frequent targets must be set but a firms D&I strategies must be owned by the Board.

Data disclosure, setting targets and risk & governance

All FSMA firms with a Part 4A permission that have 251 or more
employees, excluding all Limited Scope SM&CR firms.

Firms will be required to collect demographic and inclusion data from personnel (Board, senior leadership, and all employees) covering gender, age, religion, sexual orientation etc.

Firms will also be required to set specific time-bound diversity targets, for example, greater Board or Senior leadership representation from underrepresented backgrounds. The FCA expect one target for each of the Board, senior leadership, and employee population.

The FCA will expect firms to recognise a lack of diversity and inclusion as a non-financial risk and incorporate appropriate mitigants through target setting.

How can Newgate Compliance help?

Whilst the FCA’s D&I consultation is still in its early stages; it is clear that the regulator is emphasising that the ‘tone from the top is essential’ for firms ensuring and fostering a healthier workplace.

Whether larger threshold firms will be able to set their own D&I targets, or the regulator will use this as an opportunity to oversee and scrutinise the diversity and inclusion of those firms, is still unclear.

As the FCA’s consultation develops, Newgate Compliance will continue to support firms in clarifying what non-financial misconduct means in practice and what the regulators expectations will look like under the Senior Managers and Certification Regime, with key updates required in terms of ongoing fit and proper assessments and a revised application of the Conduct Rules. 

Newgate can assist in establishing reporting and disclosure mechanisms and updating your existing compliance framework to ensure compliance with the proposed rules. Please reach out to the team at [email protected] if you wish to engage in early readiness discussions.

About the author | Meet our compliance expert 

Alex Hurt, Senior Compliance Consultant – Newgate Compliance 

Alex is an experienced Senior Compliance Consultant at Newgate, having joined in 2020. His core expertise lies in providing specialised compliance advice to wholesale wealth and asset management firms as well as crypto asset firms across a range of regulatory frameworks, including MiFID II, AIFMD, IFPR, and PSR. 
Alex has a proven record in navigating the FCA authorisation process and conducting independent audits across diverse regulatory jurisdictions, covering the UK, Bermuda, Mauritius, and BVI.

*Permission (as defined in Section 55A of Financial Services and Markets Act 2000) granted by the Financial Conduct Authority or Prudential Regulatory Authority under Part 4A to carry on regulated activities e.g., accepting deposits, managing investments, providing investment advice etc.