LONDON - Britain's financial regulators proposed guidance on Monday for financial firms to tackle sexual harassment and bullying, along with new requirements for large banks and insurers to set targets to improve diversity and inclusion.

The Financial Conduct Authority (FCA) and the Bank of England's Prudential Regulation Authority said their proposed measures would support healthy work cultures, reduce groupthink and unlock talent.

"The proposals set flexible, proportionate minimum standards to raise the bar, placing more requirements on larger firms," Bank of England Deputy Governor Sam Woods said in a statement.

Firms would have to develop a diversity and inclusion strategy setting out how they will meet their objectives and goals.

They would also have to collect, report and disclose data on characteristics such as disability and ethnicity of staff, with an option to go further by reporting data on socio-economic background and gender identity, the regulators said.

Firms would decide on their own "appropriate diversity targets" particularly for gender and ethnicity if there is under-representation, and how to measure progress in achieving these targets.

There would be no sector-wide targets, the regulators said.

The FCA will publish final rules on the issue in 2024.

The work culture at financial companies has come under the spotlight after the Financial Times published allegations of widespread sexual misconduct by high-profile hedge fund manager Crispin Odey, who has denied the allegations.

The proposals include rules and guidance to make clear that misconduct such as bullying and sexual harassment poses a risk to a healthy work culture, and will help firms take appropriate action against employees for such behaviour, the regulators said.

"Regulated firms and individuals should have no doubt that this represents a big shift in the way the FCA will monitor and potentially sanction those in the financial community," said James Alleyne, a legal director at Kingsley Napley law firm.

Non-financial misconduct considerations would be better integrated into assessing whether an employee is "fit and proper" to work in financial services.

Firms already have to regularly check that their senior managers and other key staff continue to be "fit and proper" to continue in their jobs, and the FCA has opened an investigation into whether Odey meets that standard.

(Reporting by Huw Jones; Editing by Andrew Cawthorne and Ed Osmond and Miral Fahmy)