FCA Diversity Policies Could Be Unlawful, Lawyer Says

People look at Canary Wharf financial district, from Greenwich Park, southeast London, on Feb. 10, 2023. Daniel Leal/AFP via Getty Images

The financial regulator’s diversity policies could be unlawful, a lawyer has suggested, following equalities minister Kemi Badenoch this week saying it’s illegal to use positive discrimination and quotas in pursuit of diversity.

Asked whether she believes the Financial Conduct Authority’s (FCA’s) policies on diversity targets are lawful, barrister Anna Loutfi told The Epoch Times: “No I don’t. And I think they may have to be tested.”

Ms. Loutfi, head of legal at The Bad Law Project, said organisations may “feel like” their policies are in the right direction within the cultural landscape, but if they result in positive discrimination in practice it’s unlawful and can lead to “the worst kinds of racial segregation.”

The barrister is pessimistic about what actions can be taken against positive discrimination, saying the law is under attack.

In 2022, the FCA added diversity quotas to its “comply or explain” reporting regime.

Under the rules, certain listed companies have to either comply with a set of diversity targets or explain why the targets were not met in their annual financial report. They are also required to include a table on the diversity of their board and executive management by gender and ethnicity.

The targets include: 40 percent of the board must be women, including men who identify as women; at least one woman must be among the chair, the CEO, the senior independent director, and the chief financial officer; and at least one board member must be from a non-white minority ethnic background.

“Comply or explain” is a principle designed to give flexibility in case companies need to depart from the rules because of their particular circumstances, or if they temporarily break the rules because of unforeseen circumstances.

The FCA was warned last year by two statutory advisory panels that the approach had in effect turned into “comply or else,” although the Financial Reporting Council said the claim was “misleading,” and that companies are encouraged to use the “explain” provision where full compliance is not appropriate.

Since September last year, the FCA faced new criticism over a parallel consultation it ran alongside the Prudential Regulatory Authority (PRA), an arm of the Bank of England.

Under the proposals, larger companies and financial institutions are expected to set their own “stretching” and “realistic” diversity targets and report on their progress.

However, the regulators also noted that positive discrimination is unlawful.

On Wednesday, the independent Inclusion at Work Panel, which was tasked with reviewing diversity policies in public and private organisations, said while organisations “want to ‘do the right thing,’” their diversity policies are rarely evidence-based and can often be counterproductive or even unlawful.

The report cited two employment tribunal rulings and an inquiry report in relation to discrimination based on gender-critical beliefs or being a white man, saying the cases exposed how “well-intentioned efforts to boost visible diversity can lead to unjustifiably unfair practices that amount to unlawful positive discrimination.”

Anna Loutfi, an equality and human rights barrister, during an interview with NTD's "British Thought Leaders" programme in London. NTD

Cultural Assumptions

Ms. Loutfi said employment tribunal judgments are “not binding in the same way” that a High Court decision is, but they “tend to be all we have” in terms of discrimination cases.

The barrister said the Equality Act protects a white heterosexual Christian man the same way it protects a gay, disabled, lesbian woman of colour.

However, she said, “it’s very common for people to think and to assume” that race as a protected characteristic refers to people of colour, and that sex as a protected characteristic refers to women.

“So if a diversity, equality, and inclusion training programme or policy assumes that people who are white or people who are heterosexual or people who are male are justifiable casualties in a move to empower black employees, or to give them advantages over non-black employees, that is straightforwardly discriminatory and it is not permitted by anything you might read in the Equality Act,” she said.

Ms. Loutfi said Britain has never had racial segregation or excluded people from voting based on their skin colour, but has now imported these “American historical hang-ups” that are used to justify positive discrimination.

“If you accept that our law or laws permit that kind of discriminatory attitude, and if it’s permitted to continue as a cultural assumption, then it will become commonplace for the worst kinds of racial segregation that our society has ever known,” she warned.

The Law Is Under Attack

Asked whether the FCA and the PRA’s rules and proposals risk putting companies in the position of breaking the law, Ms. Loutfi suggested they could, but there’s also a deeper issue under the drive for diversity.

“We live in a society where the law is under attack,” she said, pointing to “cultural and political forces that are trying to undermine the legal fabric of our society.”

“They don’t believe rule of law, they don’t believe in equality before the law, they don’t believe in universal equality,” she said. “They believe in retribution. They believe in revolutionary change. They believe in empowering certain groups of people over other groups of people, they may even believe in social division as a means to the kind of society that they’re looking for.”

Ms. Loutfi argued that there’s “no point” saying something is unlawful in such a society, adding that “the kinds of actors who are pushing these sorts of positive discrimination” include inter-governmental forums and international NGOs.

“If your answer to a kind of global agenda is, ‘but it breaks the law of England,’ the answer will come: ‘Well, who cares about the law of England? This is about, you know, global progress.’ So what I find as a lawyer is that increasingly, my argument that this is against the law doesn’t count for anything.”

Referring to previous media reports that the BBC advertised a trainee role that was “only open to black, Asian, and ethnically diverse candidates,” Ms. Loutfi said such policies are “not right,” but there’s “nothing really we can do about it unless we challenge it in a court of law.”

However, even if such policies are successfully challenged in courts, Ms. Loutfi said it “doesn’t stop necessarily other people from carrying on as usual” because the concept of citizenship—“I pay my taxes, therefore, I’m entitled to legal protection, and I have rights”—has been replaced with “can you claim victimhood?”

“So it’s all ideology,” she said.

Referring to the inclusion of diversity targets in financial reports, Ms. Loutfi said, “Are they forcing companies to break the law? The answer to that question is, yes, they are. But will anybody care? Will anybody do anything? Or is the cultural zeitgeist so powerful that legal assumptions no longer matter?”

In February, 40 MPs and peers, including former Prime Minister Liz Truss and former home secretaries Suella Braverman and Priti Patel, urged Chancellor of the Exchequer Jeremy Hunt to review the FCA’s proposed rules on diversity, saying the regulator may have stepped outside of its remit.

In a statement emailed to The Epoch Times, a spokesperson for the Bank of England said: “We will consider all the responses to the recent consultation carefully and report back in due course. No decisions have been made.”

The FCA referred The Epoch Times to its consultation that included a warning against positive discrimination.