UK financial regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have announced by letter that they are dropping plans to impose new diversity and inclusion (D&I) rules in the financial services sector.
What had been proposed?
In September 2023, both regulators published much anticipated consultation papers on D&I in financial services, reflecting ongoing concerns around representation and workplace culture in the industry. These papers proposed that financial firms be required to implement comprehensive, public facing D&I strategies, designed to create more inclusive workplaces. The proposals set out a high-level regulatory framework, outlining minimum standards intended to bring greater consistency across the sector.
March 2025 Update: Regulatory Shift
In a significant change of approach, the FCA and PRA have now confirmed they will not proceed with formal rules. Instead, they will lend their support to voluntary industry led initiatives aimed at improving D&I outcomes.
This decision follows a range of feedback received during the consultation period, anticipated developments in government legislation, and concerns about imposing additional costs and regulatory burdens on firms. Government officials had voiced strong criticism of the proposals, arguing they could discourage investment and drive businesses abroad, particularly at a time when the UK is focused on economic growth.
FCA Chief Executive, Nikhil Rathi, acknowledged the government’s active policy and legislative agenda on D&I, which includes upcoming measures such as gender action plans and enhanced pay gap reporting. PRA Chief Executive, Sam Woods, echoed this, warning that implementing the proposed regulatory reforms would likely result in duplicated efforts and unnecessary expenses for businesses.
In a letter to Meg Hillier, Chair of the Treasury Committee, Woods clarified that the PRA would continue to monitor risks such as “groupthink” within its existing supervisory framework. However, firms will no longer be required to formally report on their efforts to improve diversity, such as measures to improve the representation of women and minority groups.
Both regulators continue to support the government’s policy reforms and voluntary industry initiatives, but neither will take any formal regulatory steps forward in the area of diversity and inclusion at present.
A broader context
The decision may come to a surprise to some, especially against the backdrop of international developments. In the United States, D&I policies are being rolled back across various sectors, raising questions about whether the UK’s move is part of a similar trend.
However, the UK’s legal and political environment is markedly different and that the government itself is pursuing new D&I related initiatives such as the Worker Protection Act 2024 and the proposed changes under the Employment Rights Bill. With this in mind, it’s perhaps not entirely unexpected for the regulator to pause this work while awaiting the outcome of those legislative changes.
What does this mean for UK employers?
For UK employers in financial services, this development means that there will be no immediate, binding regulatory requirements related to D&I imposed by the FCA or PRA. However, firms should not view this as a signal to deprioritise D&I efforts.
The government continues to push forward with its own legislative agenda on diversity, including new proposals around gender equality and pay transparency. These forthcoming requirements are likely to impact employers more broadly and may require policy updates on data collection and reporting in the future.
Employers should be aware that while regulators are stepping back from a rulemaking role, D&I remains a reputational and strategic issue – both in terms of attracting talent and maintaining stakeholder confidence. Financial services firms may therefore wish to continue investing in inclusive cultures and workforce representation as a part of a broader ESG strategy, even in the absence of new regulatory mandates.
For further information, or to discuss the issues raised within this case, please contact us to speak to a member of our Employment Team.
