The UK Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have put forth new proposals that could bring about crucial changes for diversity and inclusion (D&I) in the financial services sphere. The applicability of these measures may vary significantly, predicated mainly on a firm’s size and its categorisation under the Senior Managers and Certification Regime (SMCR), as well as its regulatory status.
Firms operating singularly under the remit of either the FCA or PRA, referred to as ‘solo regulated’, as well as those regulated by both bodies (‘dual regulated’), could experience different impacts from the proposed D&I regime changes.
As pertains to firm size, one could infer from the consultative documents that larger firms could find themselves under more stringent obligations under the new D&I regime versus their smaller counterparts. This inference is drawn based on the view that the FCA and PRA have traditionally employed a proportionate approach to regulation, factoring the potential risk a firm poses to the stability of the broader financial system before implementing regulatory requirements.
Also, the SMCR categorisation of a firm could significantly impact how the new D&I guidance is applied. For example, larger firms categorised under ‘Enhanced SMCR’ could be expected to adhere to more robust diversity and inclusion standards owing to the heightened level of accountability intrinsic to their role in the financial market.
While the consultation period for these proposed changes is still ongoing, affected firms should take this time to familiarise themselves with the potential direct and indirect implications of the new regime. Key areas to focus on would include understanding the different degrees of impact based on firm size, SMCR categorisation, and the regulatory governance structure the firm operates under.
More insights to this discussion can be found in Allen & Overy LLP’s article on the subject that offers a deeper exploration of the proposals put forth by the FCA and PRA.