The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have announced they will not introduce new diversity and inclusion (D&I) rules for regulated firms.

The decision follows a consultation process launched in 2023 and is influenced by broad industry feedback and anticipated legislative developments – as well as efforts to reduce regulatory burdens.

Instead, the regulators have pledged to support voluntary industry initiatives aimed at improving diversity. The announcement comes amid a broader rollback of diversity, equity and inclusion (DEI) policies in the United States.

Regulatory Burdens

In a letter to the Treasury Select Committee, FCA Chief Executive Nikhil Rathi stated that diversity and inclusion can deliver improved internal governance, decision-making and risk management while supporting the competitiveness of UK financial services through access the a wide pool of talent.

However he he noted that many firms wanted regulatory efforts to align with existing government legislation, to “avoid duplication and unnecessary costs”.

“We therefore do not currently plan to publish new rules on diversity and inclusion,” Rathi concluded.

PRA Chief Executive Sam Woods also acknowledged the value of “an appropriate focus on diversity and inclusion”, but added that no new rules would be imposed.

“There is also a growing emphasis in our work on reducing regulatory burdens on firms while still delivering our objectives and adding significant new requirements in this area could be seen as in tension with that approach,” Woods said.

Upcoming Legislation

The decision has received mixed reactions from legal and advocacy groups. Sophie White, a partner at law firm Eversheds Sutherland, noted that while some firms would welcome the reduced regulatory burden, others would need to reassess their internal efforts for diversity and inclusion.

“Some firms will be relieved at the potential regulatory burden now lifted by this announcement, but many will continue with their ongoing diversity and inclusion initiatives (and perhaps take the opportunity to review them), especially where they impact on culture,” she said. “However, D&I has not gone away for employers.”

White also pointed to upcoming government legislation that will now take centre stage.

“The focus now will be on the Government’s Employment Rights Bill expected to be passed this summer, with plans for gender initiatives and forthcoming draft Equality (Race and Disability) Bill, also expected this summer,” she said.

Under the new proposals, companies with 250 or more employees will be required to publish an equality action plan addressing gender pay gaps and support for employees experiencing menopause. The draft Equality Bill will also mandate ethnicity and disability pay gap reporting, making demographic data collection essential for compliance.

Concerns Over Diversity and Inclusion Backlash

Reboot, an advocacy group supporting diversity in financial services, criticised the FCA’s decision, warning that it could undermine progress on DEI initiatives. In a statement, the group said, “While we acknowledge the increasing pressures regulators face from various industry stakeholders, this move marks a significant setback for progress at a time when DEI is needed more than ever.”

The group pointed to growing resistance to diversity policies in 2024, driven by geopolitical instability, rising populism and financial pressures.

“The FCA’s decision risks reinforcing this trend, despite clear evidence that employees across the sector overwhelmingly support greater action,” the statement added. Reboot previously urged the FCA to maintain momentum on DEI, warning that reversing its consultation could send the wrong message to the industry.

“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. The FCA’s decision is a setback, but it must not become the defining moment for DEI in financial services,” the group said.

As regulatory bodies withdraw from direct intervention, the financial services industry will need to determine its own approach to diversity and inclusion, balancing voluntary initiatives with upcoming legislative requirements.