Diversity and inclusion in the financial services and insurance sectors — implementing key initiatives

Diversity and inclusion (D&I) reporting is a key focus under the umbrella of ESG in which regulators are taking an increased interest, not least because of the positive impacts on business growth and corporate governance. Further to the joint discussion paper (DP21/2) issued by the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (FRA) and the subsequent consultation process, it is expected that reporting requirements for large firms will very soon be implemented. Policy statements are expected in early 2024 with a 12-month implementation period for firms.

In this article, we discuss some key initiatives that will ensure compliance with reporting requirements and drive positive change for your organisation.

According to the DP21/2, there has been a clear focus on diversity metrics within organisations as they are easier to measure, but the emphasis remains on gender and ethnicity. Few studies consider wider diversity metrics such as disability, age, education and social mobility. There is also a persistent reliance on marginalised groups to provide solutions and strategies for the complex task of creating diverse and inclusive workplaces, as well as providing for a diverse customer base.

The regulators recommend bringing together a range of perspectives, experiences and abilities to inform decision-making and problem-solving. This will, in turn, allow everyone to feel involved and respected, and generate a culture of inclusion and psychological safety, whilst unlocking new talent and reducing groupthink.

The DP21/2 highlighted a number of successful D&I initiatives including:

• Transparency and data collection: creating a D&I dashboard by collecting granular data on gender, ethnicity, disability and socio-economic characteristics, which can support evidence-based policymaking and identify areas for improvement.
• Talent pipeline and progression: from anonymous recruitment processes to clear development programmes for underrepresented groups, it is important for firms to consider the progression of all employees and ensure diversity at all levels.
• Training and support: training staff on the importance of fair treatment of vulnerable customers, unconscious bias and professional behaviour in the workplace is a starting point for developing an inclusive culture.
•  Inclusive language in handbooks, guidance and business practices: ensuring the correct language is used, both internally and externally, can prevent bias and foster inclusion.
• Senior management ownership of D&I targets: leaders should set a compelling strategy to empower teams, whilst monitoring effectiveness and achievement.
•  Promotion of D&I strategy at board level: whilst increasing representation at board level, promotion of the D&I strategy at the top leads to effective governance throughout the firm.

Industry-wide benchmarking initiatives, for instance the Social Mobility Employer Index, and practical calls to action, such as the Race at Work Charter, have also provided helpful tools and frameworks to increase diversity and inclusion in professional settings.

It is likely that the burden will fall to HR departments to collect the necessary data, draft and implement policies, design culture surveys and conduct regular audits and gap assessments. This will require significant investment of time and money, but should also be proportionate to the size and operations of the firm.

It is recognised that firms may not be in a position to immediately comply with the proposed rules, and that implementation of D&I strategies could incur significant costs. The regulators both published their cost benefit analysis within the consultation papers weighing up the cost of implementing the reporting mechanisms with the benefit to the UK financial system, consumers and the wider economy. Ultimately, they found that a lack of D&I in the financial services industry, amongst other sectors, may result in poor (and costly) outcomes. Firms may be unable to understand or fully meet the needs of their customers, or develop poorly designed and unsuitable products. Poor decision-making or misconduct would risk the integrity of the UK financial system and impact negatively on competitiveness.

In the alternative, the regulators consider that investment into compliance with the D&I reporting requirements will contribute towards a healthy workplace culture, reduced groupthink, unlocking new talent and a greater understanding of and provision for diverse consumer needs. More broadly, measures to support market integrity can also contribute to greater levels of trust and confidence in UK markets.

Our expert regulatory and employment teams can assist with such initiatives to support the compliance with the new regulations, implement key initiatives as outlined above and provide training for staff and management. For further guidance, speak to our experienced legal advisers.