Kemi Badenoch has accused the Financial Conduct Authority (FCA) of regulatory “overreach” after the watchdog outlined plans to boost diversity and inclusion in the City last year.
In a letter to the FCA’s chief Nikhil Rathi, seen by City A.M., the business and trade secretary said the regulators proposed rules on diversity will be a “distraction” for companies and could hamper the government’s efforts to prioritise growth in the sector.
“I am concerned about regulatory overreach having read the FCA’s consultation on proposals to introduce a new regulatory framework on diversity and inclusion in the financial sector,” she wrote in the letter to Rathi on March 20th.
“Far from being a central part of the FCA’s objectives, the proposed requirements will be a distraction, which will hold back regulated firms from priorities such as delivering economic growth and improving services to consumers.”
The evidence that diversity would help boost growth and the protection of consumers “is very limited” and the “benefits claimed are speculative”, she added.
“At a time when government is focused on driving economic growth through smarter regulation, the FCA should not be adding regulatory burdens which go well beyond the legislative framework in the Equality Act,” Badenoch wrote.
The clash come after the regulator said it would draw up rules on diversity and inclusion last year and force lagging firms to set targets.
Under the plans, revealed in September, the FCA said “increased diversity and inclusion in regulated financial services firms can deliver better internal governance, decision making and risk management”.
The proposals include “flexible, proportionate minimum” standards with a higher bar for larger firms. Those plans will include developing a diversity and inclusion strategy “setting out how the firm will meet their objectives and goals” and collect “data against certain characteristics”.
Firms will also be expected to “set targets to address under-representation”.
Central to Badenoch’s complaint is the sugegstion that the proposals go beyond what is required under the Public Sector Equality Duty and companies could be hamstrung by “positive action measures”. She has asked the regulator to explain what “legal or policy frameworks … underpin the goals” of the planned rules.
The FCA told City A.M.: “We have received the letter and will respond.”
The diversity push has already been contentious with several ministers speaking out against the efforts. Speaking at a conference today, Badenoch said the plans would be “counter-productive” and her role involved “the killing of bad ideas”.