Where next for DEI in financial services?

Diversity, equality and inclusion (DEI) has been a newsworthy topic in recent months after a number of high-profile American and global companies rowed back on DEI initiatives in response to significant pressure from the US government, which has abruptly reversed course on diversity policies. Many of our financial services clients, particularly those with active operations in the US, are asking whether UK companies will follow suit. 

In March 2025, we reported that the FCA confirmed that they do not currently plan to publish new rules on diversity and inclusion, with the PRA giving the same confirmation. Whilst on the face of things, this might suggest the FCA and PRA are rowing back on DEI priorities, we believe that this is far from the case – and in fact, DEI in financial services is still very much on the agenda.

In forming its decision, the FCA stressed that a major factor was that many people who responded to its consultation paper to boost DEI in the financial services sector were not in favour of the FCA establishing a new set of rules, preferring instead that it and the PRA align their regulatory approach with the UK’s “very active” policy and legislative agenda, including employment rights, gender action plans, and disability and ethnicity pay gap reporting.

There is indeed a very active DEI policy agenda in the UK and it is clear DEI is a priority area for this government. By way of example:

1. The Employment Rights Bill, which is expected to receive Royal Assent in the coming months, contains a variety of proposals intended to support DEI, such as requiring employers to take “all” reasonable steps to prevent sexual harassment of their workers (rather than just “reasonable steps” as the law currently provides) as well as protections against third party harassment.
2. The Equality (Race and Disability) Bill has proposed reforms including the introduction of mandatory ethnicity and disability pay gap reporting for large employers (expanding on gender pay gap reporting requirements), and is also set to introduce equal pay protections to outsourced services, to extend equal pay rights to race and disability, and to establish a regulatory and enforcement unit for equal pay - the Equal Pay Regulatory and Enforcement Unit.
3. The Office for Equality and Opportunity has also published a call for evidence on the upcoming changes to equality law and inviting views on the same until 30 June 2025. 

Clearly, with such an active policy landscape for DEI in the UK, if the FCA were to introduce its own DEI rules, it would need to be careful to avoid overlap and/ or introducing measures which conflicted with the government’s future legislative framework.

Taking a step back from DEI, whilst the legislative DEI agenda unfolds, the FCA is focusing its attention on non-financial misconduct. 

As we understand it, the FCA plans to set out “next steps” in respect of non-financial misconduct, which should include a Policy Statement confirming new rules and guidance on dealing with non-financial misconduct by the end of June this year.  

It seems, therefore, there is no indication that the UK FS regulators intend to facilitate a row back on DEI initiatives in the sector; rather, it is merely a change in strategic direction whilst we await the implementation and application of DEI measures through legislative channels. What financial services firms can expect to see more of in the meantime is guidance on the FCA’s “next steps” in dealing with non-financial misconduct. More on this to follow! 

This Passle has been co-authored with Hayley Ainsworth (Associate) from our Employment Team.

An attempt to streamline or ‘a significant step back’?

https://adv.portfolio-adviser.com/fca-and-pra-axe-plans-to-impose-stricter-dei-rules-for-financial-services/