The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have abandoned plans to impose stricter rules for diversity, equity and inclusion (DEI) in the financial services sector to “avoid duplication and unnecessary costs”.
In 2023, the FCA and PRA launched a consultation on proposed rules and expectations which they said was aimed at improving diversity and inclusion in regulated firms. However, “in light of the broad range of feedback received, expected legislative developments and to avoid additional burdens on firms at this time, the FCA and PRA have no plans to take the work further”.
In letters to Dame Meg Hillier, dated 11 March 2025, the chief executives of the FCA and PRA noted “there is a very active policy and legislative agenda, including on employment rights, gender action plans and disability and ethnicity pay gap reporting”.
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Currently, businesses with over 250 employees are required to publish annual statistics on their gender pay gap and, under proposed new regulations, will also be required to publish and implement action plans to address their gender pay gaps and to report on their ethnicity and disability pay gaps.
UK employers are also under a general duty to protect their employees from discrimination and, since October 2024, are subject to a new duty requiring them to take reasonable proactive steps to prevent sexual harassment in the workplace.
The FCA added it was continuing to prioritise its work to tackle non-financial misconduct, but believes “it is important that our approach is proportionate and aligned with planned legislation”. It plans to release further information on the next steps it intends to take by the end of June this year.
An attempt to streamline or ‘a significant step back’?
Although there may be some concern, given the rollback of DEI initiatives in the US, Lucy Blake, partner at Jenner & Block, advised the decision by the FCA and PRA “does not signal a volte face” from their commitment to tackling diversity and non-financial misconduct in the workplaces. In fact, for Blake, it is an attempt to streamline the obligations on UK businesses.
“The FCA and PRA’s decision not to proceed with the planned DEI reporting requirements and to take more time to consider the non-financial misconduct proposals is not unexpected, particularly in the context of the comments by the heads of the two regulators that they are looking to reduce the scope for overlap with other new and proposed legislation in this area.
“The decision by the FCA and PRA does not mean UK businesses are ‘off the hook’ when it comes to DEI and non-financial misconduct because they are – or will be – subject to these new and proposed laws.”
However, Baroness Helena Morrissey, chair of the Diversity Project, said she was disappointed with the decision. “Almost four years after the original joint FCA/PRA discussion paper, Diversity and inclusion in the financial sector – working together to drive change, the regulators have decided to drop their proposals around diversity and inclusion and have postponed their guidance to firms on non-financial misconduct.
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“The arguments the regulators made in both the 2021 discussion paper and 2023 consultation paper around the linkage with good firm cultures remain just as strong today and, of course, in the meantime we heard strong evidence of pockets of poor culture and behaviours through the Treasury Committee’s Sexism in the City review.
“We will continue to help all our member firms who are committed to ongoing progress and who are also motivated by their desire to create the best performing teams, give all talent a fair shot and meet their clients’ expectations.”
Reboot went further in its criticism. While it acknowledged the increasing pressures regulators face from various industry stakeholders, the move “marks a significant setback for progress at a time when DEI is needed more than ever”, it said.
“Throughout 2024, we observed growing resistance to DEI initiatives, driven by geopolitical instability, rising populism and financial pressures fuelling ESG fatigue. The FCA’s decision risks reinforcing this trend, despite clear evidence that employees across the sector overwhelmingly support greater action.”
Additionally, Reboot cited results from its Race to Equality 2024 report, which found 84% of employees believed ethnicity pay gap reporting should be mandatory, and 87% said companies should be required to disclose their data alongside action plans.
A pulse survey conducted by Reboot in partnership with Opinium further revealed that 70% of financial services employees believe little real change has occurred since the Black Lives Matter movement and feel dissatisfied with their firms’ response to recent race-related issues. Worryingly, more employees feel “muzzled” when speaking up about racial diversity concerns, fearing professional repercussions.
“Diversity is not just a ‘woke’ issue – it is about better decision-making, stronger risk management and fostering a financial sector that truly serves society,” Reboot declared. “The FCA’s decision is a setback, but it must not become the defining moment for DEI in financial services. Now is the time for leaders across the industry to step up, take ownership, and give their employees the reassurances they need.”
This story was written by our sister title, PA Future
