UK regulator makes clear that DEI is a regulatory issue
– A recent speech by the UK’s FCA CEO highlights how diversity and inclusion are considered key regulatory issues.
– The FCA is considering a move towards a “comply or explain” approach, to increase diversity at board level by requiring firms seeking a premium listing to have at least two diverse directors.
This Linklaters memo describes how a recent speech by the UK’s principal financial regulator – FCA CEO Nikhil Rathi – highlights how diversity and inclusion are considered key regulatory issues. Here’s an excerpt from the memo:
1. The FCA regards diversity and inclusion within financial services firms as an essential element in driving improved customer outcomes. A diverse and inclusive culture creates an environment where firms properly understand the differing needs of their customers and reflect those in product design, customer service, and customer communications. Firms will need to consider what steps are required to make sure that diverse voices are being heard and reflected at each stage – and whether outcome testing and complaints analysis allow this to be tested.
2. Firms – and their Boards – can expect to be challenged if progress is not made towards diversity at all levels, with the FCA asking about representation across grades and whether their culture is open and inclusive. Mr Rathi’s suggested a sixth question to add to the existing five conduct questions for wholesale banking: is your management team diverse enough to provide adequate challenge and do you create the right environment in which people of all backgrounds can speak up?
In addition, the FCA is considering a move towards a “comply or explain” approach, to increase diversity at board level by requiring firms seeking a premium listing to have at least two diverse directors. As the speech acknowledges, if it did so the FCA would not be breaking new ground: Nasdaq adopted similar rules last year, and in other markets market participants have been moving towards such practices on a voluntary basis.