ICAEW.com works better with JavaScript enabled.

FCA urges firms to review diversity and inclusion pay data

Author: ICAEW Insights

Published: 06 Aug 2021

The Financial Conduct Authority has written to financial services firms stating there is “much more that needs to be done” when it comes to diversity and inclusion.

In a letter to remuneration committee Chairs on August 3, the FCA urged firms to review pay data across all protected characteristics and to “act swiftly to address any disparities.” It also called on firms to review accountability and non-financial measures, calling on them to ensure high standards of conduct and culture and make sure there is a clear link between behaviours and remuneration outcomes.

This letter comes as last month the FCA, Prudential Regulation Authority and Bank of England came together to set out plans to improve diversity and inclusion in financial services. Towards the end of the month, the FCA also proposed changes to its listing rules as a way of improving transparency on the diversity of listed company boards and their executive management teams.

Consulting on annual D&I updates

The regulator is consulting on rules to require companies to disclose annually on a comply or explain basis whether they meet specific board diversity targets and to publish diversity data on their boards and executive management.

In the letter today, the FCA said the role of chairman was "crucial" in ensuring that a firm’s remuneration policies and approach to paying variable remuneration adapted and evolved with the pandemic.

A clear link between behaviour and remuneration

The letter also urged chairmen to use the Senior Managers and Certification Regime (SM&CR) as a key tool to ensure high standards of conduct and culture within the firm and can provide a clear and evidenced link between behaviours and remuneration outcomes.

“For instances of poor behaviour or misconduct, ex-post risk adjustments should be made which are appropriate and timely. The reasons for adjustments should be transparent to the individuals concerned”, the letter stated.

The FCA also underlined non-financial measures which the regulator said should be linked to remuneration measures.

“During these challenging times, we have observed firms redefining their purpose to support the issues that really matter to them and in the context of Environmental, Social and Governance (ESG) issues, particularly the ‘social’ element. We expect to see more firms using non-financial measures in scorecards to support ESG factors”, said the FCA.

Remuneration Approach for 2021/22

In line with the statement made by the PRA on 25 May 2021, the FCA said firms with a fiscal year-end of 31 December should submit their Remuneration Policy Statement (RPS) and appropriate tables by 30 September 2021 along with:

  • A short summary of the key points in the RPS with cross-references to the full RPS, including any key changes made in the last year.
  • An explanation of how the firm has assured itself that its overall remuneration policies support the firm’s purpose, business strategy and values and incentivise the right behaviours; and how the firm’s approach to paying variable remuneration will be considered in the continuing context of the pandemic. FCA Supervisors will coordinate their approach with the PRA and engage with firms as required, including providing any feedback at the most appropriate time during the engagement. 

Read the full FCA letter to the Remuneration Committee.

ICAEW’s Diversity and Inclusion hub brings together timely resources on regulation and equality, along with our latest insights into diversity in the profession.

Recommended content

A megaphone
Stay up to date

You can receive email update from ICAEW insights either daily, weekly or monthly, subscribe to whichever works for you.

Sign up
Daily summaries
Three yellow pins planted into a surface in a row
News in brief

Read ICAEW's daily summary of accountancy news from across the mainstream media and broader financing sector.

See more