UK Financial Conduct Authority Makes Diversity and Inclusion a Regulatory Priority

March 23, 2021

The UK Financial Conduct Authority (FCA) has recently published two speeches reiterating the broad and fundamental importance of diversity and inclusion within financial services. Delivered by the FCA’s executive team, the speeches cover (1) the significant work still to be done to improve diversity and inclusion in the sector; (2) the value of diversity and inclusion and their importance to a healthy culture; and (3) the steps the FCA may take in the future to drive improvement, including potentially changing the way in which it considers senior manager applications and introducing diversity requirements to premium listing rules. Firms are encouraged to take note and to review the adequacy and effectiveness of their current diversity and inclusion arrangements.

For many years, the FCA has focused its regulatory firepower on improving accountability, standards of behavior, and more generally, firm culture within financial services. The Senior Managers and Certification Regime (SMCR), which has now been rolled out across the sector, has been the FCA’s principal tool to pull up firms and individuals. While in recent years the FCA has tended to focus its culture-related speeches on issues of nonfinancial misconduct (such as discrimination and sexual harassment), there has been a marked shift recently in the FCA’s attention to matters of diversity and inclusion. The FCA now reiterates the importance of firm culture being “purposeful and safe” and that part and parcel of a healthy firm culture is providing a supportive environment in which diversity and inclusion flourish.

The shift in emphasis is understandable, given the ongoing under-representation in financial services of sectors of the community. And it is also unsurprising that the FCA has announced the steps it may take in the future (detailed below) if firms do not improve their diversity and inclusion.

On 16 March 2021, Senior FCA Adviser (and former FCA COO) Georgina Philippou delivered a speech at the Building Ethnic Diversity and Inclusion in Investment Management – Report Launch. While focused on investment management, the themes she discussed translate more broadly across the financial services sector. The published version of the speech emphasizes the chronic lack of gender and ethnic diversity within the industry and that the FCA, as the sole regulator for many firms, has an important role to play in addressing the imbalance: to lead by example as an employer itself, and to regulate firms through its work on culture.

As Ms Philippou’s speech sets out, the FCA’s “starting point” is that it wants “financial services firms to have healthy cultures that reduce the potential for harm to consumers and markets.” Such cultures are “purposeful and safe” and they “support environments that are diverse and inclusive.” The FCA recognizes that “no one size fits all” and it would be “inappropriate” for the FCA to “mandate particular cultures.” However, the FCA expects firms (and firms should take particular note here) that, “when it comes to culture and diversity and inclusion,” they should be able to do all of the following:

  • Articulate their purpose
  • Talk about how their governance structures drive good decisionmaking
  • Set an appropriate tone from the top
  • Show that their people policies are effective in driving diversity and inclusion

Ms Philippou noted that, while there is no rule in the FCA Handbook mandating diversity or that firms must have an internal or external diversity policy, diversity and inclusion are broadly relevant and the FCA has “a range of tools” at its disposal to influence firms.

The next day, 17 March 2021, FCA CEO Nikhil Rathi gave a speech at the launch of the HM Treasury Women in Finance Charter Annual Review. Mr Rathi considered the positive impact of the Charter on female representation in senior management, but similarly recognized the significant further work that must be made in improving not just gender diversity, but other diversity, such as ethnic diversity, within financial services. Mr Rathi focused on the importance of diversity and inclusion—not just as innate social goods, but on their ability to reduce conduct risk and ensure that firms more fairly reflect and serve their communities, which are regulatory concerns.

Mr Rathi’s speech also set out the measures that the FCA may take if the industry fails to improve its diversity and inclusion in “the years ahead.” These measures include potentially revisiting the FCA’s senior manager application process and introducing premium listing requirements in each case to specifically address diversity. It is understood that Ms Philippou is currently leading an internal working group exploring how the FCA can best utilize its powers in this space.

The FCA speeches highlight that all firms should take diversity and inclusion seriously, as part and parcel of a healthy firm culture and as drivers of positive outcomes. Firms are encouraged to review their diversity and inclusion arrangements in light of the FCA speeches and, with renewed focus and scrutiny, to analyse the adequacy and effectiveness of those arrangements, particularly with an eye to addressing under-representation.


Morgan Lewis has experience in diversity, equity, and inclusion matters, including workplace culture consulting and training and harassment prevention. If your organisation is interested in finding out more about the support we can provide, please contact one of the lawyers listed below.


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