The consultation will be open until 18 December and comments and feedback on the “proposed approach” will be used to develop final rules in the next year.
The proposal sets “flexible, proportionate minimum standards”, with higher requirements set on larger firms.
Proposals for firms include developing a diversity and inclusion strategy outlining how the firm will meet their objectives and goals, improving data reporting, collection, and disclosure against certain characteristics and setting targets to address under-representation.
It also includes new rules and guidance to “make clear that misconduct such as bullying and sexual harassment poses a risk to healthy firm culture”.
“This guidance will help ensure firms can take decisive and appropriate action against employees for such behaviour,” the regulator added.
The regulator added: “Flexibility is at the heart of the proposals. Each firm is different, and they need to come up with their own solutions. Most of these requirements, including setting targets, regulatory reporting and disclosure, would only apply only to the largest firms.”
It noted that increased diversity and inclusion would “translate into better internal governance, decision-making and risk management”.
“That contributes to promoting the safety and soundness of firms, policy holder protection and better outcomes for markets and consumers,” it added.
‘Increasing diversity can attract and unlock talent’
FCA’s chief executive Nikhil Rathi said: “For UK financial services to be competitive and for the companies in it to be well run with healthy work environments, it’s vital they attract, retain and promote the best talent. The data suggests this isn’t happening. Our proposals will encourage the largest firms to put in place plans and report against their delivery.
“UK financial services has long been a magnet for best-in-class talent globally. Increasing levels of diversity within firms can help attract and unlock talent, supporting the sector’s international competitiveness.”
He added: “We have taken a lead among regulators in taking a clear stance that non-financial misconduct, such as sexual harassment, is misconduct for regulatory purposes. We’re strengthening our expectations on how the firms we regulate consider such misconduct when deciding whether someone is fit and proper to work within the industry.”
PRA’s chief executive Sam Woods added: “Diversity and inclusion play an important role in guarding against groupthink within firms. Firms in which a broad range of perspectives is welcomed and encouraged will manage their risks better, advancing the PRA’s objective of safety and soundness.
“Stronger diversity and inclusivity should also make firms more competitive by enabling them to attract a wider pool of talent. We are tabling proposals today which we think will advance our objectives, alongside existing core parts of our regime such as capital and liquidity requirements, and we welcome views on them from all stakeholders.”