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FCA Reflections: D&I – Key thinking from the multi-firm review

Posted on 19 December 2022

On 12 December 2022, the FCA published its observations from its multi-firm review of how financial services firms are designing and embedding diversity and inclusion (D&I) strategies and practices (the Review).

The background to the Review is the joint D&I Discussion Paper from the PRA, the Bank of England and the FCA published in July 2021 (the D&I DP). D&I is a key environmental, social and governance (ESG) priority for the FCA. Please see here for background.

The Review is vital reading for firms aiming to be leaders in this area. It explains the FCA's observations, expectations and how it will likely engage in future supervisory interactions with firms. The Review concludes that "there is still much to be done".

Why D&I is critical to the FCA

The Review explains that "diversity and inclusion are essential for healthy firm cultures, enabling firms to deliver better outcomes for consumers and markets." On 22 November 2022, Sheldon Mills, Executive Director, Consumers and Competition said in his speech at the Association of British Insurers that "achieving a more diverse and inclusive financial services industry is an important part of the ESG priority the FCA has set out in [its] Business Plan".

Developing on this, last year, I spoke at the Goodacre Securities Industry Conference on the implications of the D&I DP. My goal was to explain why the regulators describe this work as "critical". I spoke about:

  • the potential for diversity of thought to create competitive advantage;
  • the link between D&I, corporate purpose and culture;
  • how to climb the diversity step ladder; and
  • how the shifting regulatory landscape will likely impact organisations, focusing on:
    • data collection and regulatory reporting; and
    • organisational composition and governance.

Regulated firms should be clear that this is a key priority for the FCA, among other regulators, and appropriate attention will be placed on firms. This is further reinforced from my time sitting on the advisory board for the Government's socio-economic diversity taskforce.

Key findings from the Review

The FCA asked 12 firms across multiple sectors to take part in the review. The FCA asked for and considered the following:

  • Diversity and inclusion policy and strategy;
  • Data collection, targets and goals; and
  • Interviews with senior staff about how things are done in practice.

Key findings from the Review include:

  • "Most firms did not have strategies that clearly linked diagnosis, action and measurement."
  • "Senior managers were accountable and that diversity and inclusion goals could affect pay and bonuses. But it was much less clear in many cases how this worked in practice."
  • "Firms tend to focus most on improving representation at senior leadership level. This is despite data showing that the biggest drop-off in representation is from junior to middle management grades."

Areas for reflection

With regard to future supervisory interactions, the FCA has set out what, at a minimum, it is likely to ask firms for. Expanding on one identified area, data collection, firms would be well advised to consider the following:

  • Strategy: What data is being collected and why?
  • Reflection: What is this data telling you?
  • Use: How is this data being used to identify areas for improvement and measure this progress?
  • Impact: What impact does this data have on your organisation? For example, your brand, your ability to recruit and retain top talent, and how you are perceived by clients?

The Review made the pointed observation that firms lack "clear articulation of purpose and actions oriented to achieving their goals". A considered analysis of these issues will be important to enable senior individuals to confidently speak to these areas and avoid regulatory scrutiny.

Culture is of great interest to the FCA. Particularly, the implications a poor culture can have on conduct and therefore on outcomes. The Review highlights that "very few firms seemed to have understood diversity and inclusion as a fundamental culture issue". Interestingly, in the FCA's Prodhan Final Notice, dated 16 November 2022, a significant criticism of the CEO was a failure to "create a culture which supports effective regulation and take responsibility for overseeing systems for which they are responsible."

Effective implementation of D&I is about much more than simply satisfying the regulators' expectations. It is about your organisation's competitive advantage. To achieve this competitive advantage, climbing the diversity step ladder is essential. To do so is less about statistics and more about an attitude arising from inclusiveness and psychological safety. These enabling factors will open the door to becoming a leader in this area and reaping the multi-faceted benefits that doing so brings.


The FCA intends to publish its (eagerly anticipated) D&I consultation paper in 2023. However, the Review is an important intermediate step for the FCA in that it clearly sets out its observations and thus expectations to firms.

"Breaking the Class Ceiling", a report issued by the Government's socio-economic diversity taskforce, identified that "aside from the inherent unfairness, an absence of socio-economic diversity…has wide ranging social, business and economic consequences for organisations, the sector and beyond." Business may wish to consider how to effectively implement D&I to enjoy the multi-faceted benefits that doing so brings.

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