Financial Conduct Authority reminds firms of culture and diversity priorities

The FCA's 22 July 2020 letter to Remuneration Committee Chairs is a strong reminder to firms that healthy culture and diversity in financial services remains an FCA priority across all sectors. 

The FCA observed that there was a risk that firms may reduce their focus on culture as they redirect resources in response to the COVID-19 crisis and emphasised that firms must continue to focus on their organisational culture. Remuneration and recognition practices remain areas of importance as the FCA continues to assess how firms' approaches to rewarding and incentivising staff promote healthy cultures and minimise harm. 

The FCA believes that diversity and inclusion are an important part of healthy culture, and has asked Remuneration Committee Chairs to assess the extent to which firm remuneration policies positively promote diversity and inclusion across all protected characteristics and take appropriate steps to address any areas of weakness or concern.

Over 2019/20, the FCA found that firms were embedding conduct in their remuneration policies and practices through performance assessment measures and responding to misconduct by adjusting variable remuneration. The FCA has sought to engage with firms on how remuneration policies can positively influence approaches to diversity and inclusion. The FCA considers that firms understand the benefits of a diverse work force and acknowledged that they are moving towards long-term goals. Nonetheless, the FCA expects firms to make material progress in addressing inequalities and creating an inclusive environment.   

Firms are encouraged to consider analysis in relation to gender and BAME pay gaps and use these to address inequalities. Firms' approach to diversity and inclusion should seek to advance equality of opportunity  between those people who share a protected characteristic under the Equality Act and those who do not.

Remuneration Committee Chairs need to satisfy themselves that remuneration policies reinforce healthy cultures and promote the right behaviours including in the context of the current environment. The FCA expects firms to consider how remuneration policies promote equality of opportunity and to ensure that diversity and inclusion is embedded in the firm's approach to rewarding its people, avoiding unconscious bias.

The letter is a strong statement from the FCA as to the priority it places on culture and diversity. It is clear that these will be areas subject to supervision scrutiny over 2020/21.