A proposed new regulatory framework on Diversity and Inclusion (D&I) for financial institutions will have “a chilling effect” on free speech, a civil liberty group has said.
The consultations were run between Sept. 25 and Dec. 18 last year by financial regulators the Financial Conduct Authority (FCA), which regulates the conduct of nearly 45,000 businesses in the UK, and the Prudential Regulatory Authority (PRA), an arm of the Bank of England that supervises around 1,500 financial institutions including banks and insurance companies.
The regulators said the proposed rules would set “set flexible, proportionate minimum standards to raise the bar” on diversity and inclusion and require firms to develop a D&I strategy; collect, report, and disclose data against certain characteristics; and set targets to address under-representation.
In its consultation paper, the PRA said diversity in organisations usually includes diversity of demographics, experience, and thought, adding that it believes “a combination of demographic diversity and diversity of experience are likely to foster a greater diversity of thought in firms and help reduce groupthink.”
Responding to the consultation, FSU General Secretary Toby Young said the practical implementation of diversity and inclusion initiatives has been different from the underlying theoretical concepts.
The group, which supports members who are targeted for their speech, has “seen repeated examples of one-sided approach diversity and inclusion, with the uncritical acceptance of gender identity ideology and critical race theory, as well as other aspects of identity politics,” Mr. Young said, adding that firms often rely on unregulated external D&I providers who propagate “a homogenous way of thinking” and allow “ill-defined concepts such as ‘equity’ to become entrenched in company policies.”
Mr. Young also expressed concerns over the evolution of D&I concepts and definitions, saying it has been driven by activists with an ideological agenda.
He said the FSU does not share the confidence with the PRA, who said the proposed rules don’t provide a basis for debanking over opinions and beliefs.
He also questioned the plan to allow firms to choose between sex or gender for their mandatory reporting, saying it’s not appropriate to expect or encourage financial institutions to collect the data because a recent court case had “established that not believing in gender identity is a protected belief.”
The FSU didn’t publish its response to the FCA, but it voiced concerns over the regulator’s proposal that large firms should treat a “lack of diversity and inclusion” as a “non-financial risk” which must be “treated appropriately within the firm’s governance structures.”
“We’re concerned that one of the most obvious ways for regulated firms to comply with this new requirement—should it come into force—would be to embed politically contentious diversity and inclusion policies deeper into their businesses, which will have a chilling effect on the free speech of those who disagree with the ideology underpinning those policies,” the FSU said.
In 2022, the FCA added diversity quotas to its “comply or explain” reporting regime, so companies would have to increase diversity rather than pay lip service to it.
Under the rules, companies have to ensure at least 40 percent of the board are women; at least one woman is among the chair, the CEO, the senior independent director, and the chief financial officer; and at least one board member is from a non-white minority ethnic background. Companies that fail to reach the targets would have to explain why.
