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The UK’s financial regulators are facing fierce backlash from the City to their flagship diversity initiative, with companies objecting to proposals for mandatory disclosures in areas such as religion and warning that they risk flouting employees’ privacy.

The Financial Conduct Authority and Prudential Regulation Authority published papers last month outlining measures to boost diversity and inclusion across more than 1,500 companies with more than 250 employees in London’s Square Mile and beyond.

Instead of forcing banks, insurers, asset managers and others to employ a certain percentage of staff by gender, sexual orientation, ethnicity and other characteristics, the FCA and PRA have focused on transparency.

They want to introduce mandatory disclosures on workforces’ age, sexual orientation, sex or gender, long-term health conditions, ethnicity and religion as part of the most comprehensive effort in tackling finance’s decades-old lack of diversity.

Groups will also be asked for voluntary data on their workforces’ gender identity, parental responsibilities, career responsibilities and socio-economic background, with FCA chief executive Nikhil Rathi vowing the disclosures would promote competitiveness by unlocking under-tapped talent pools.

But one executive at a large US bank said “the industry is really going to fight hard on this [initiative]”, adding that the watchdogs were “trying to do a good thing but going about it in the wrong way”.

A second large international bank said: “The proposals do indeed seem to want to force disclosure from employees that we don’t think it’s right to enforce. We are going to say that.”

The regulators are consulting on the proposals until December 18 and will publish final rules next year.

Several companies said that while they welcomed the goal of promoting diversity, they were concerned about some of the data demanded.

“There’s a tension if people don’t want to share that . . . you can’t force a person to respond,” said an executive at a third large international bank.

The PRA said in its consultation that although it was not “creating a requirement for employees to disclose information . . . If firms were receiving high numbers of these [prefer not to disclose] responses relative to their peers, this could possibly indicate a lack of inclusiveness”.

The PRA declined to comment on companies’ concerns about this or other aspects of the proposals. The FCA said it recognised “that employee declaration rates and data are better for some characteristics” and proposed “less granular disclosures” in areas beyond sex, gender and ethnicity.

In the consultation documents, which run to 110 pages, regulators said they used the nine protected characteristics in the UK’s Equality Act as a starting point for disclosures, before considering what was relevant and what “firms can act upon”.

One large European bank said it believed data collection should not be obligatory for religion; other groups also expressed surprise at religion’s inclusion on the list of mandatory metrics.

Fiona Willis of the Association of Financial Markets in Europe said the lobby group encouraged “the regulators to be clear about how the data will be used to support diversity within the industry”.

She added that AFME wanted watchdogs “to reassure the industry that the partiality of data sets will not be used to infer conclusions about psychological safety or culture” in workplaces.

“Where there are companies headquartered outside of the UK and the jurisdiction of their headquarters is culturally significantly different, there’s a real culture clash there,” said Yasmine Chinwala of think-tank New Financial.

In Germany, gender is no longer included on staff ID cards, while in France it is illegal to record an employee’s ethnicity.

One banker suggested reluctance to disclose sexual orientation and gender identity could be as much about bigger political dynamics as whether a company was a “safe space”. “Look at Florida,” he said, pointing to recent moves to restrict discussion of LGBT+ issues.

Companies also cited concerns that disclosing granular metrics about their leadership teams could lead to inadvertent breaches of data privacy rules if members of the groups were identifiable.

The FCA said it had “built safeguards . . . to address concerns around identifiability and have explicitly set out how firms can combine data sets to avoid identifying individuals”.

“We encourage firms to respond to the consultation and make suggestions if there are different ways to do this,” the regulator added.

Additional reporting by Sally Hickey

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