The UK’s two main financial watchdogs have ditched plans to impose diversity, equity and inclusion (DEI) targets on City institutions amid a government push to put Britain’s regulators on a growth footing.
The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) announced on Wednesday that in light of the “broad range” of feedback and “expected legislative developments” from the government, they would abort their push to regulate DEI.
Alongside the diversity about face, the FCA also confirmed it would no longer seek to ‘name and shame’ firms facing investigations, after reports surfaced about the ‘name and shame’ u-turn earlier this week.
The FCA had hoped that the threat of publishing firms and individuals under investigation would help prevent illicit behaviour.
But after a protracted rearguard action from City heavyweights, the watchdog said that “given the lack of consensus” on naming and shaming, it would not take forward its proposal to name firms before a charge “except in exceptional circumstances”.
The FCA and PRA’s diversity plans date back to September 2023, when the two watchdogs announced a consultation on whether to set diversity targets at companies that fall under their purview.
In the accompanying announcement, the two watchdogs argued that improved DEI can “reduce group think” and support “healthy working cultures” and proposed a framework that established minimum standards across the UK’s financial institutions.
Two years later, those plans are dead in the water, with the watchdogs confirming that as well as the changed political landscape and feedback from industry, they also wanted “to avoid additional burdens on firms”.
The moves, which was accompanied by news that the FCA would pause plans to regulate non-financial misconduct at City firms, comes as regulators face growing pressure from government to encourage growth.
In a letter to the UK’s 90 regulators on Christmas Eve, the Chancellor demanded that watchdog bosses “bear down” on regulatory hurdles that stifle the UK economy. And Labour has since overseen the departure of several bosses – including the Competition and Markets Authority’s Marcus Bokkerink and Financial Ombudsman Service’s Abby Thomas – as part of the push.
Wendy Sauunders, a former FCA boss and a partner at City law firm Lewis Silkin, welcomed the move despite acknowledging the importance of corporate DEI.
“The FCA’s proposals on diversity and inclusion would have imposed unwarranted costs on firms without delivering clear benefits, and the proposals as drafted on non-financial misconduct would have completely undermined certainty and predictability in engaging regulated staff in the financial services sector,” she said.
The regulators’ DEI about turn follows several widely reported moves from firms to dial down – or completely pull – their diversity and equity inclusion targets.
The trend has been especially apparent in the US, where Donald Trump has signed an Executive Order that outlawed what he called “illegal discrimination” and restored “merit-based opportunity”.
But several high-profile moves have spilled into the UK and Europe. Goldman Sachs vice chair Richard Gnodde said the US banking behemoth had scrapped its rule barring it from advising all-male, all-white boards on IPOs, telling the BBC it had “served its purpose”.
But others have maintained targets despite their US counterparts. In a departure from its US partnership, Deloitte UK announced it was sticking with its diversity policies.