Following the publication in September 2023 of the PRA and FCA consultations on diversity and inclusion (D&I), financial services firms must prepare themselves for much greater scrutiny of their approaches to D&I across their organisation. There are likely to be requirements for public disclosures of D&I performance which will require significant transparency, and place leaders in the spotlight like never before. This could be particularly uncomfortable for those firms that, despite numerous D&I initiatives and public pledges, have not shown significant progress.
To meet regulatory expectations, firms will need to review almost every area of their operations through the lens of D&I. Whereas past D&I-related requirements, such as gender pay gap reporting, tended to focus on one specific diversity group, the new proposals take a more holistic approach. This will require assessment of many areas, from HR to data, legal, tax etc., to establish current performance, identify areas for improvement and ensure that a forward-looking D&I strategy can be fully embedded within the organisation. See the consultation measures overview at the bottom of this article.
Take the first step now: Gap assessment
Most firms will already have a D&I strategy and some targets across the various diversity groups, but these are highly unlikely to be robust and granular enough to satisfy the new proposals. The first step should be to undertake a clear assessment of the organisation’s current D&I strategy and performance, including existing policies, processes and roles.
A gap analysis can then be developed to bridge the divide between current and desired performance, identifying the actions and initiatives required to ensure that both regulatory expectations and the firm’s own objectives are being fully achieved. A successful D&I strategy doesn’t just mean recruiting more people with different D&I characteristics - it requires a fundamental review of the employee lifecycle, fostering an inclusive leadership culture, training the managers making hiring and promotion decisions, reviewing existing data collection tools, and utilising informal company structures such as Employee Resource Groups.
Build a truly diverse workforce
Addressing all these areas cuts across every aspect of an organisation’s strategy, and it starts at the top. Existing requirements[1] around boardroom diversity mean that some boards are already focused on meeting the current requirement for female or minority representation. To deliver a more meaningful and authentic D&I strategy, however, requires a robust and continuous pipeline of candidates, so that organisations can consistently choose the best person for the role. This means building a diverse workforce at every level of the organisation, particularly in the ‘pinched middle’, where D&I gaps often become more apparent. The right infrastructure is required to build a pipeline of diverse talent and to create and maintain a positive D&I culture, and includes training programmes, reward and remuneration policies, career development pathways, communication strategies and leadership behaviours. Firms’ D&I intentions must be more than just rhetoric – this requires full buy-in from the leadership team and clear cascading of strategic intent from the boardroom to the coffee machine.
One D&I strategy
The key challenge for many organisations will be bringing together the many different elements into a single cohesive D&I strategy. Certain elements will naturally fall into certain areas of expertise, for example legal considerations to the legal function. However, the various divisional teams involved in the wider D&I process must work together as part of a unified strategy, and not be distracted by a narrow focus on their individual responsibilities. Effective communication will be crucial to ensure that all employees understand the purpose and objectives of the firm’s D&I strategy, realise the organisational and individual benefits of increased D&I, and are engaged in implementing it.
Start getting ahead
Overhauling existing D&I strategies will be a long and complicated process. Although final PRA/FCA policy is not expected until mid-2024, and there may be clarifications and amendments to the proposals based on industry feedback, organisations have an opportunity now to start getting ahead, breaking down barriers, enhancing innovation and paving the way for a more productive and empowered workforce, whilst enhancing the way they are perceived in the market and building competitive advantage over less agile peers.
KPMG in the UK brings together our vast experience in people consulting, employment law, data analytics and learning. We can support you to deliver long-lasting cultural change and retain and attract the best diverse talent. Contact us to discuss your D&I plan in detail or for further information on our data driven diversity tool.
For more on the regulatory proposals, see here.
