On 8 March 2024, the Treasury Committee published its Sexism in the City report, which examines diversity and inclusion in financial services. As the Committee was undertaking its work, the FCA was also shining a spotlight on firms in the London Market in its own bid to tackle Non-Financial Misconduct (NFM) in the financial services sector.
During her oral testimony before the Treasury Committee, Sarah Pritchard, FCA’s Executive Director for Markets and International informed the Committee that the FCA was carrying out a survey of wholesale banks and wholesale insurers, to examine numbers and statistics of NFM cases in this section of financial services to see how cases are detected and resolved.
Pritchard confirmed the initiation of a supervisory work programme, the results of which would be used to evaluate progress, share best practices and inform the FCA’s supervisory approach when the new rules come into force.
Two months after the Committee started its work, in September 2023, the FCA and PRA published consultation papers aimed at promoting diversity and inclusion in financial services and establishing transparent and consistent minimum standards of conduct, with a policy statement expected to be published later this year.
The FCA has been particularly focused on firms in the London Market. In its Dear CEO letter of 20 September 2023, which set out the Insurance Market Priorities of 2023-2025, the regulator states “All insurance firms should reflect on their culture. However, the wholesale insurance market in particular has a long way to go in having an inclusive culture… Areas for improvement include diversity, equity and inclusion at all levels. They also include preventing and handling non-financial misconduct, including discrimination, harassment, victimisation and bullying...”.
In a statement following the Report release, the FCA has outlined its plan to reflect on the feedback received resulting from its September 2023 consultation, while also paying regard to the Treasury Committee’s comments on its consultation as well as the Report’s findings and recommendations.
Key areas for consideration will include whistleblowing, the use of non-disclosure agreements and the implementation of family friendly policies such as equality impact assessments. Against this background, we highlight a few areas for firms to consider going forward.
NDAs and whistleblowing: The FCA has made clear its interest in learning how cases are being resolved within firms. Pritchard confirmed to the inquiry that data and information ‘is being collected’ on the use of NDAs as a means of resolving bullying, harassment and sexual misconduct cases.
Importantly, she stated that despite the need to safeguard the confidentiality of commercial terms, signing a non-disclosure agreement does not prevent a person from reporting to the FCA as a whistleblower.
Data collection and supervision: Data collection is already in progress with the aim of using the information gathered to “take stock and share best practice”. This will lead to enhanced supervision and possible enforcement action depending on the FCA’s view of information disclosed.
It is unclear if firms will still have access to data from recent years, but it is advisable for firms to carry out some internal ‘stock-taking’ of their own, reviewing internal data and taking steps to address any identified gaps. We expect to see increasing regulatory supervision in this area as the data collected is used to inform the regulator’s supervisory activities going forward.
Firms’ DE&I frameworks: The heightened level of scrutiny presents an opportunity for firms to consider how robust their DE&I policies, procedures, processes and controls are. The FCA in its recent statement highlighted the responsibility of boards and senior management to prioritise cultural change in addressing the existence and persistence of the issues that bar women from career progression in the sector.
A core part of this is that firms view DE&I as a subset of culture, as well as examine their culture at a board and enterprise level. The Chair holds an important role as the culture champion at the board level, but the enterprise level should also be appropriately considered. Beyond policy and procedure, firms should also examine how cases are handled in practice.
Policy and Government legislation: The Committee has called on regulators to consider encouraging its regulated entities to implement policies such as equality impact assessments.
Firms should consider how they would undertake such impact assessment. On a wider note, the Committee in its recommendations has called on the UK government to introduce relevant legislation which raises considerations around future compliance planning.
We are seeing a lot of activity on DE&I, so you should consider the various reports and regulatory consultations to ensure that you understand their outcomes from both the cultural and operational perspectives across all levels of your organisation. Ultimately, this will help ensures that you are meeting best practice long-term and ensure policies are inclusive from the top-down.
To learn more about DE&I and the impact on your firm, contact Blandine Arzur-Kean.
