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Diversity and inclusion (“D&I”) in the workplace including at leadership levels of organisations is an ever prominent issue brought into sharp focus during the pandemic, intensified in the wake of the recent racially motivated crimes in the US and elsewhere,  which had brought this critical issue on the agenda of many regulators, globally including the UK’s financial services regulators, the Financial Conduct Authority (“FCA”) and the Prudential Regulatory Authority (“PRA”).

Earlier this year, in July, the UK’s financial services regulators published a discussion paper and a consultation paper setting out proposals to enhance diversity and inclusion in the financial services and the UK listed company sectors respectively. The feedback period on both papers recently came to an end. This alert looks at some of the detail behind the proposals and considers whether in some aspects the FCA has missed an opportunity to push forward the broader D&I agenda and whether in other ways it has gone too far with certain proposals which may have a real and direct impact on the privacy of individuals and the qualitative impact of the proposals.

INTRODUCTION & OVERVIEW OF THE PROPOSALS

Joint Discussion Paper Impacting the UK Financial Services Sector

What?: On 7 July, the FCA, the PRA and the Bank of England[3] (together, the “Regulators”) issued a joint discussion paper – “Diversity and inclusion in the financial sector – working together to drive change” (“DP 21/2“)[4]  expounding how meaningful change in respect of diversity and inclusion in the financial services sector can be accelerated and the paper should be viewed as the starting point for the implementation and formalisation of the related requirements. The Regulators’ make it clear that their primary focus is enhancing “diversity of thought” or “cognitive diversity” whilst recognising that diversity of thought can be influenced by many factors including demographic characteristics which are visible and measurable (e.g. gender, age, ethnicity) and invisible (e.g. disability, sexual orientation and education).

Which firms does it impact?: DP 21/2 affects the whole UK financial services sector including firms authorised and regulated jointly by the FCA and PRA (e.g. banks, building societies, designated investment firms, credit unions and insurance firms) or solely by the FCA. Payment services and e-money firms, credit rating agencies and recognised investment exchanges regulated by the FCA and FMIs regulated by the Bank of England fall within the broad reach of the paper.

Next steps: The proposals are only at a “discussion paper” stage but will be the foundations upon which further steps towards change in this area are built upon. Whilst the official deadline for feedback on the discussion paper passed on 30 September, the regulators propose to continue to engage with firms and other regulators on the topics presented in the paper and intend to gather further data to support their analysis and eventual recommendations with a view to issuing a formal consultation paper in Q1 2022 followed by a Policy Statement in Q3 2022.

Consultation Paper Impacting Listed Companies in the UK

What?: On 28 July 2021, the FCA has published a consultation paper – “Diversity and inclusion on company boards and executive committees” (CP 21/24)[5] which sets  a number of proposals to enhance diversity-related reporting by certain listed companies in  relation to gender and ethnic diversity at both board and executive management level.

Which types of companies does it impact?: The companies in the scope of the breath of the proposals are both UK and  overseas issuers with equity shares, or certificates representing equity shares, admitted to either the premium or standard section of the FCA’s Official List (“In-scope Companies”). In addition, the corporate governance related proposals will also capture UK issuers admitted to UK regulated markets and certain overseas listed companies (subject to exemptions for small and medium companies).

The FCA is proposing to exclude open-ended investment companies and shell companies. The FCA is also proposing at this stage, to exclude issuers of debt securities, securities derivatives or miscellaneous securities. The FCA estimates that there are about 1,106 issuers who would be In-scope Companies (766 large issuers and 340 small and medium-sized issuers).

Next steps: The consultation closed on 20 October 2021 and, subject to consultation feedback and approval by the FCA Board, the FCA aims to publish a policy statement along with the new Listing  Rules and the Disclosure and Transparency Rules (“DTR”) before the end of 2021. This would mean that any new rules would apply to accounting periods beginning on or after 1 January 2022.

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