DE&I View - October 2023

We set out below some of the key diversity, equity and inclusion developments from the past three months.

1. FCA/PRA Consultation Papers on D&I

Two and a half years after the Discussion Paper was published in July 2021, the FCA and the PRA have finally published Consultation Papers on D&I. We were eagerly awaiting their arrival following the FCA's commitment to publication when discussing non-financial misconduct with the Treasury Select Committee. We published a Flash SMCR+ View covering some of the highlights of the papers, which you can find here.

Now we've been through the papers we've set out some more detail here and some of our views on the:

• Changes proposed relating to non-financial misconduct and fitness and propriety assessments - do these resolve existing issues or create more?
• The reporting and disclosure requirements: whether the regulators' proposals are achievable in practice or simply add uncertainty and legal risk;
• Challenges where the regulators' proposals diverge from established employment law protections and definitions; and
• Issues around accountability for D&I (particularly for dual regulated firms).

Responses to the Consultation Papers are due by 18 December 2023, with the rules becoming effective one year after the Policy Statement is published which is expected in 2024 (TBC as to whether this date gets pushed out further).

We'll be writing our own response to the Consultation Papers and would love to hear any thoughts you may have on the proposals.

2. Mandatory ethnicity pay gay reporting

The government has published its response to the mandatory ethnicity pay gap reporting consultation, five years after its launch. Key points from the response include:

• No legislation making ethnicity pay gay reporting mandatory is to be introduced "at this stage", and employers should instead refer to the April 2023 voluntary reporting guidance;
• There are difficulties in designing a methodology for ethnicity pay reporting, and the appropriate metric to use is contested. Given this, government feels it would be inappropriate to mandate a particular methodology; and
• Nearly all employers agreed that a standardised approach to ethnicity classifications should be used to ensure consistent and comparable data.

The response notes generally that the government remains "determined to take steps to help employers address unjust ethnic disparities in the workplace, recognising that disparities emerge for a complex range of reasons and that not all disparities are a result of discrimination", but does not particularise these steps at this stage.

3. The gender pensions gap

The TUC has published a report on how the UK pension system delivers lower incomes for women, and how to close the gap. The report highlights that among today's pensioners in the UK, women's incomes are 40.5% lower than men, compared to an average of 25.6% across OECD member countries. Citing findings from the Pensions Policy Institute, it is noted that average women in their early 60s will have built up a median pension value of £51,000 compared to £157,000 for men.

In terms of the driving forces behind the gender pensions gap, the TUC flags three key issues:

• The gender pay gap, exacerbated by workplace pension systems that can exclude low earners entirely;
• Lifetime working patterns (most commonly as a result of unpaid caring responsibilities) meaning women are more likely to take time out of the labour market or work part-time; and
• Differing levels of state pension entitlement.

In order to address the gender pension gap the TUC makes a number of policy proposals, including better reporting to highlight the problem, addressing the pay and employment gaps at the root of pension disparities (by improving childcare and flexible working arrangements, for example), and making the occupational pension system work better for lower paid workers.

4. Intersectionality and workplace equality

The Mckinsey Institute for Black Economic Mobility has published new research highlighting the challenges employers continue to face in achieving both gender and ethnic diversity in the workplace.

The research finds that while 66% of employers had high female representation and 50% had high ethnic-minority representation, only 17% had both.

5. Sexism in financial services

The House of Commons Treasury Committee has announced the launch of an inquiry into sexism and barriers faces by women in financial services. The inquiry will explore how firms, the government and the regulators should respond to combat sexual harassment and misogyny.

A related call for evidence has also been published, requesting specific evidence in relation to:

• Removing the barriers to women entering financial services, including into executive roles;
• The impact of the Women in Finance Charter and other initiatives; and
• The role of the government and regulators in collecting and publishing appropriate data and marketing the financial industry to diverse candidates.

Gender diversity at board level is particularly pertinent given recent EY findings that 82% of European financial services investors have cited it as a factor with significant influence on their decision to invest. Despite this, 28% of Europe's financial services boardrooms are yet to reach the 2026 European Commission target of 40% female representation. 

6. Women leaving the workforce

The British Standards Institution (BSI) has published a report on what it calls the "second glass ceiling" - the reasons women are leaving the workforce early - and how to support women to prevent this.

The BSI makes a number of recommendations throughout its report, including opening dialogues to understand women's needs, providing accessible support, offering flexibility in work arrangements, and fostering a culture of care.

7. The Disability Action Plan

The government's Disability Unit and Equality Hub has launched a consultation on the proposed 2023-24 Disability Action Plan. The consultation details steps already taken or due to be taken by the government to improve disabled people's lives (including support for the Carer's Leave Bill and the Employment Relations (Flexible Working) Bill) and states that the 2023-24 Plan will, among other things, set out actions anticipated to support the foundations for long-term change.

8. FCA's approach to non-financial misconduct

In July, the House of Commons Treasury Committee published a letter from Nikhil Rathi, FCA Chief Executive, covering the FCA's work on non-financial misconduct. Among other things, the letter notes:

• The FCA intends to provide further guidance later this year on non-financial misconduct, including how it should be considered within the FCA's conduct rules (please see above regarding the D&I consultation papers);
• To date, seven individuals have been prohibited by the FCA for non-financial misconduct and all but one case involved a criminal conviction/caution. Six further prohibition cases are currently under consideration for a range of sexual and other offences; and
• The FCA recognises that Parliament may, in the future, choose to legislate to specify that certain offences should lead to an automatic prohibition from a regulated sector.

9. International developments

As before, this edition of the View will be spotlighting some of the DE&I developments across our international network, namely Belgium:

• Belgium's extension of the protection against discrimination and harassment at work - New Belgian legislation contains fundamental changes to the rules on discrimination and harassment at work in Belgium:
  • Under pre-existing law, when employers take any adverse action against employees who have filed a complaint of discrimination or harassment, they are required to prove that the action is unrelated to the complaint. Under new legislation, employers must now also be able to prove that the adverse action is not linked to facts that can be inferred from the content of the complaint of discrimination or harassment.
  • The scope of individuals protected from adverse action for discrimination or harassment complaints has been extended to "informal witnesses" if such witnesses have made an "active contribution" to the complaint or alert e.g. an individual who has stood up for the victim in a discussion with a supervisor.
  • Where harassment is linked to a trait protected by the discrimination legislation, it is not necessary for an individual to file a formal complaint to benefit from the protection against adverse actions.
  • The new legislation includes explicit recognition of two types of multiple discrimination: cumulative discrimination (based on multiple protected criteria that are cumulated but remain separable) and intersectional discrimination (discrimination based on multiple protected criteria that interact and become inseparable).
  • The concepts of discrimination by association and by assumption are enshrined in the new legislation.

We have loved hearing your feedback on previous editions, so please do continue to let us know any additional areas you would like us to cover.

For more information on any of the points covered please contact Fiona Bolton, Sahib Sidhu or Sarah Blake.