PwC’s FCA and PRA Diversity & Inclusion Regulation Webinar
PwC hosted a virtual event to discuss the proposed regulatory framework. The event gave details of the proposals and included a panel with industry leaders and D&I, legal and regulatory experts, followed by a Q&A.
What is it?
These two CPs are broadly consistent in content and set out proposed requirements (subject to proportionality) that firms:
- Embed non-financial misconduct considerations into existing regulatory frameworks;
- Clarify D&I governance of and accountability, including through embedding D&I into existing Senior Management Function (‘SMF’) responsibilities, certain SMF remuneration, and the role of for risk management and control functions;
- Set a robust and data and evidence driven D&I strategy;
- Set D&I targets to embed this strategy; and
- Introduce new annual D&I monitoring, regulatory reporting, and public disclosure
Scope and Proportionality
Firms in scope
The various proposals in the FCA and PRA CPs apply to different groups of regulated firms.
- FSMA firms and Part 4A permissions - All firms which have a Part 4A permission, i.e. carry on at least one FSMA regulated activity, are in scope of at least some of the D&I proposals.
- CRR firms and Solvency II firms - The PRA’s D&I proposals apply to all CRR firms and Solvency II firms
Proportionality and firms out of scope
- The FCA excludes Limited Scope Senior Manager and Certification Regime (‘SM&CR’) firms from all requirements except those related to non-financial misconduct.
- Organisations with an average of 251+ employees per entity over a rolling three year period (‘larger firms’) would be subject to all requirements. Those beneath these thresholds would not have to apply the proposed requirements related to target setting and data monitoring, reporting and disclosure (but would need to embed non-financial misconduct considerations into existing regulatory frameworks and submit data on the number of employees)
What’s next?
The FCA and PRA will each publish their final rules and guidance as part of a Policy Statement (‘PS’) in 2024. They propose to bring the rules into force 12 months from publication of these. Reporting and disclosure requirements would be on a ‘comply or explain’ basis for the first year only.
What should organisations do next?
Review current D&I practices, strategies and data to identify any gaps and priority areas to address;
Engage with key stakeholders such as the Board, HR, risk and senior leaders to discuss any gaps and agree strategic priorities;
Consider starting work on any gaps that may take time to address (such as collecting diversity data); and
Consider whether to respond to the CP by the deadline of 18 December 2023.
Companies are and should be starting to think about the following areas…
Identifying current gaps and future priorities compared to the CPs
Collecting workforce diversity data and/or improving data collection systems
Setting robust diversity targets
Preparing for measuring and addressing inclusion issues
Creating or improving any D&I strategy, including to embed D&I data
Any training/process changes required to meet non-financial misconduct requirements
Creating consistent and clear narratives to support D&I disclosures
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