Inclusion, diversity and equity has become globally recognized as a hot topic for employers, and the financial services industry is no exception. Fairly or unfairly considered to maintain a traditional culture with a hierarchical workplace, financial institutions and regulators have recognized that personal integrity and honesty are key for individuals in positions of trust. A workplace that is inclusive and where people feel safe to speak up promotes diversity of thought with employees who feel safe to “blow the whistle” if they have concerns, helping to bring about safer decision-making and more effective risk management. In the US, for example, we have seen many high-profile individual and class actions asserting claims against financial institutions for discrimination and harassment; in the UK, parliament is holding a “Sexism in the City” inquiry that has heard from witnesses including senior executives of the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), which jointly regulate the financial sector.
Against this backdrop, many financial institutions are understandably focused on inclusion, diversity and equity efforts. In 2021, the New York Department of Financial Services issued guidance outlining its expectation that New York-related financial institutions make the diversity of their leadership a business priority and a fundamental component of their corporate governance. Following a recent consultation exercise, this year, the FCA and the PRA in the UK are due to publish a new framework on this topic in financial services. This will apply to employees working in the UK and to activities carried out from a UK establishment (including those of overseas firms), although smaller employers will be exempt from many requirements. Many institutions would be required to report to regulators not only their average number of employees, but also data on age, sex or gender, ethnicity, disability, sexual orientation and religion (with the option to voluntarily report on gender identity, socioeconomic background and parental or carer responsibilities). In addition, they would have to report inclusion metrics, diversity targets and progress updates. Collecting such data may prove challenging, both in terms of building trust with employees that it will be appropriately used, or in some jurisdictions such as France, because collecting such data is unlawful.
Affirmative or positive action, particularly around recruitment and promotion initiatives, is also under the spotlight in both the US and the UK. The US Supreme Court’s decision striking down race-conscious college admissions programs has led to debate about actions in the workplace. Quotas are unlawful in both the US and the UK, but aspirational goals based on the profile of an organization may be lawful if they are based on data and data analytics. UK businesses that wish to use positive action need to be clear about the disadvantage suffered, by whom and why, the actions they take and the impact they want to see (and by when), and, importantly, to have assessed whether the actions would be proportionate to the intended outcome.
To learn more, listen here to the latest episode of our global financial institutions podcast, FInsight. Here, New York Employment & Compensation Partner Blair Robinson and London Employment & Compensation Senior Associate Lorren Martin, discuss global inclusion, diversity and equity trends in the financial sector.