Last week, the UK’s financial regulators abandoned their plan to introduce diversity and inclusion rules that would have required finance firms to report on diversity metrics and set annual targets for diversity.
Explaining the decision, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), the Bank of England’s regulatory arm, expressed a reluctance to saddle UK firms with extra regulatory burdens and costs. Instead, the regulators will support and encourage voluntary policies aimed at improving diversity and inclusion in the sector.
Responses from the finance industry have been mixed. While some have welcomed the move, others warn it could undermine what meagre progress has been achieved to help underrepresented groups in the industry.
The decision comes in the wake of a DEI rollback in the US. Last year, several Wall Street firms, including Bank of America and Goldman Sachs, publicly dismantled their diversity initiatives. And Donald Trump’s return to the White House has prompted another wave of blue-chip firms, including McDonald’s, Amazon and Meta, to curtail their DEI commitments.
Why were the reporting rules dropped?
The UK’s financial regulators proposed the DEI rules in response to an apparent lack of progress on gender equality in the finance sector.
In 2023, the Treasury Committee launched an inquiry into sexism and misogyny in the City, which sought to uncover any challenges still faced by women in financial services, and examine whether progress had been made on the gender pay gap since an initial inquiry in 2018. When the March 2024 report revealed that “not much” had changed, the PRA and the FCA suggested that UK finance firms start reporting on diversity and inclusion.
Following a consultation, however, the regulators concluded that doing so would create an unwelcome compliance burden at a time when the UK government is emphasising growth.
In a letter to the Treasury, PRC’s chief executive, Sam Woods, said the government’s new rules on sexual harassment and ethnic pay-gap reporting made any sector-specific regulations unnecessary. He wrote: “Many of those who responded to our consultation wanted us to align our regulatory approach with related initiatives, to avoid duplication and unnecessary costs.” He also implied that the proposed requirements may be inconsistent with the Labour government’s efforts to stimulate economic growth by reducing regulation.
Wood said the regulator would “remain alert to the risks of group-think” in the firms it manages, but would not introduce any additional DEI reporting requirements.
A ‘huge relief’…
Wendy Saunders, head of financial services at Lewis Silkin, a law firm, says it is a “huge relief” that the FCA is no longer proceeding with the DEI proposals, which, she adds, would have placed unwarranted costs and stress on firms without delivering clear benefits. “The rules would have been negative for financial-services firms and for the government’s push for economic growth,” she says.
The regulators’ willingness to respond to industry leaders’ concerns is reassuring, adds says Katharine Leaman, CEO of Leaman Crellin, a regulatory compliance consultancy and advisory board member at Skillcast, a regulatory compliance specialist training provider. “I think it is a very brave decision by the regulators to roll back an initiative based on genuine feedback.”
Leaman, who spent more than decade at the FCA, says the proposals were “nice but theoretical”. Accurately capturing and reporting on diversity, she says, can be a very challenging conundrum as the data is often inaccurate and not fully representative. “The FCA is still transitioning to being a data-led regulator, which gives you a good idea of just how hard it is to get data and to use it effectively,” she explains.
…or a major setback?
Others are less enthusiastic about the rule reversal. Sheila Cameron, CEO of Lloyd’s Market Association, says the decision to ditch DEI reporting is “disappointing”. She says Lloyd’s market insurers have been reporting such data to her organisation since 2020, and that doing so is essential to the market’s future success. “The data has enabled the market to track progress against Lloyd’s targets and ambitions, as well as highlight specific areas in need of focus, such as diversity of senior leadership.”
The move can be interpreted as a major setback at a time when greater focus on DEI is sorely needed. The mean gender pay gap across the financial sector stands at 35.4%. Moreover, in 2024, a litany of major multinational banks reported only modest reductions in their gender pay gaps. Compounding these challenges is a troubling shift in corporate culture. Mark Zuckerberg’s call for more “masculine” workplaces and the Trump administration’s attack on diversity programmes in the US government are indicative of the growing resistance to DEI initiatives.
“It’s intriguing to see how the BoE and FCA aim to avoid groupthink, yet blind spots are rarely recognised until it’s too late, especially when inclusion is deprioritised,” says Lynda Clarke, chief operations officer at Tribe Payments, a fintech firm. “Without structured oversight, who will take ownership of this in our industry? And are we risking a cycle of exclusion that weakens governance and innovation?”
The UK finance sector remains dedicated to DEI
So far there is little evidence of UK finance firms back-peddling on their diversity policies – quite the opposite. Deloitte’s UK division, for instance, recently announced plans to continue its work on DEI, despite its US arm ending such programmes.
“It’s hard to know what the long-term impact will be, but I don’t really see what benefit firms would gain by ditching DEI policies at this point, every good firm should be thinking about diverse succession planning,” says Leaman. She points out that many companies across the finance services sector have tethered their diversity goals to long-term business strategy and are therefore unlikely to change course based on recent developments. “DEI has gained good momentum in the city, but if we really want to support business growth we should have one piece of regulation that covers all sectors across the country and not just financial services and the city.”
Moreover, the UK regulators’ apparent U-turn may be different from seemingly similar moves in the US. After all, financial-services firms are still under pressure from various stakeholders to improve their diversity and inclusion, stresses Monique Melis, global head of financial-services compliance and regulation at Kroll, a UK advisory firm. “Easing regulation may provide short term relief, but it does not remove the broader expectations from investors, clients and employees.”
Organisations must reaffirm their commitment to diversity
Although the UK finance sector appears committed to diversity and inclusion, Melis says the industry must not become complacent, adding that firms should not only re-emphasise the importance of keeping DEI policies but work to bolster them.
“It is encouraging that firms have the space to shape their own approach, provided the conversation remains at the board level,” she says. “Governance, risk management and sustainable talent strategies remain critical to long-term business success regardless of specific regulatory requirements. But without a clear regulatory framework from the FCA and PRA, it will be up to boards to drive progress – something they can’t afford to ignore, as expectations around transparency and accountability aren’t going away.”
It may be tempting to view this development as a retreat from DEI at a time when the project is particularly vulnerable. But DEI in financial services is likely here to stay. Diverse perspectives are essential for success in financial services. Inviting diversity can help firms avoid groupthink, bolster decision-making and build trust in the sector as a whole. That’s enough incentive for many senior finance leaders to maintain their commitments to diversity and inclusion – or, at least, it should be.
Last week, the UK's financial regulators abandoned their plan to introduce diversity and inclusion rules that would have required finance firms to report on diversity metrics and set annual targets for diversity.
Explaining the decision, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), the Bank of England’s regulatory arm, expressed a reluctance to saddle UK firms with extra regulatory burdens and costs. Instead, the regulators will support and encourage voluntary policies aimed at improving diversity and inclusion in the sector.
Responses from the finance industry have been mixed. While some have welcomed the move, others warn it could undermine what meagre progress has been achieved to help underrepresented groups in the industry.
