UK watchdogs scrap diversity and inclusion rules for financial firms

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Britain’s top two financial regulators have axed plans to impose stricter rules for diversity and inclusion, in the latest sign that government pressure on watchdogs to support economic growth is forcing a rethink of many policies.

The Financial Conduct Authority and the Prudential Regulation Authority said on Wednesday that they would not proceed with plans requiring companies to disclose more about their diversity and inclusion policies, after these were widely criticised by politicians and businesses.

The move came alongside the FCA’s decision to abandon contentious proposals to “name and shame” more of the regulated firms it investigates and Prime Minister Sir Keir Starmer’s plan to scrap the UK’s separate payments regulator.

It also mirrors a rapid retreat by US companies from diversity, equity and inclusion initiatives amid an all-out assault from conservatives emboldened by Donald Trump’s election as president.

Under plans outlined in September 2023 by the FCA and the PRA, which is part of the Bank of England, financial services companies would have been required to report more data on staff diversity, including age, ethnicity, gender, religion and sexual orientation.

The heads of the two regulators told MPs on Wednesday that the plans were being dropped in response to criticism that they would add an onerous reporting burden for firms and create overlap with government proposals to legislate in this area.

In a letter to Dame Meg Hillier, chair of the House of Commons Treasury select committee, PRA head Sam Woods 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.

“Given this, we do not currently plan to publish new rules on diversity and inclusion, and do not intend to return to this question until after the substantive implementation of any new legislation in this area,” Woods said.

He added that regulators would support voluntary industry initiatives and “remain alert to the risks of groupthink within firms”.

Many financial services companies are already required to report on their gender pay gap, but MPs pushed back against plans to widen the amount of diversity reporting imposed on them.

In its “Sex and the City” report last year, the Treasury select committee warned: “These costly initiatives with unclear benefits would likely be treated by many firms as another ‘tick-box’ compliance exercise, rather than necessarily driving much-needed cultural change.”

Starmer has since called on leading watchdogs to propose ways to boost economic growth, and told cabinet ministers to carry out an audit of all 130 regulators to see which bodies can be axed.

FCA chief executive Nikhil Rathi confirmed in his letter to the TSC that the watchdog was also backing away from plans to identify more of the regulated companies it investigates.

Explaining the decision, Rathi said that while he had “set out an aim to build a broad consensus behind the proposals” and they had been backed by consumer and whistleblowing groups, “industry remains largely opposed to certain aspects”.

Rathi said criticism had focused on “specifically publicising an investigation into a regulated firm carrying out authorised activity when a public interest test is met”.

“Given the lack of consensus, we will not proceed with this and will therefore stick to our existing exceptional circumstances test to determine if we should publicise investigations into regulated firms,” he added.

Rathi noted that the regulator would still proceed with plans to disclose the identity of regulated companies it investigates when these are announced by others and when it is probing unregulated companies, “which are often frauds involving significant consumer harm”.

The FCA said it was delaying plans to introduce rules on non-financial misconduct, such as sexual harassment or bullying in the workplace, until June. They had been due by this month.

Rathi said in his letter that the watchdog was “still committed to this work” but that “the legislative landscape has also changed since we consulted”, so it was “taking some further time to get this right”.

The two regulators also said they were planning to review how scrapping the cap on bankers’ bonuses was affecting gender pay and inequality.

But to allow time for companies to adjust their pay policies, this work was likely to happen only in the 2026-27 financial year, the FCA and PRA said.