Improving diversity, equity and inclusion (DEI) in UK financial services has been on the regulatory agenda for some time. The regulators’ focus was sharpened in 2021 when it became clear that particular groups of consumers were suffering financial harm as a result of the Covid pandemic, and last autumn, the Financial Conduct Authority and Prudential Regulation Authority announced bold proposals to drive forward the DEI agenda in financial services. (This article refers to DEI although the regulators’ consultations refer to D&I). These included measures that could ultimately lead to public ‘naming and shaming’ of firms failing on DEI, with comparable published data available for direct assessment of firms by their customers, employees and stakeholders. Then, in March this year, the ‘Sexism in the City’ inquiry findings were published, which generated rather disjointed feedback from the regulators and Government.

The United Kingdom’s financial services sector has a real opportunity to pave the way for changes in other jurisdictions and other industries, but will the dial really be shifted? Or are there too many cooks? And where does this leave firms who are trying to establish good practice while navigating an already challenging environment?

In this article, written for Compliance Monitor, Lucy Hadrill and Jo Martin from Womble Bond Dickinson review the story so far, and consider the direction of travel, assessing what this might mean for financial services firms and how firms can take a proactive approach to DEI success in the workplace.

What’s happened so far?


In September 2023, the FCA and PRA launched consultations on ambitious and wide-ranging proposals to improve DEI within financial services firms. Their view was that greater diversity and inclusion can, among other aims, improve outcomes for consumers and markets by reducing ‘groupthink’ – this is the process by which groups arrive at poor decisions because alternative options either haven’t occurred to members in the group, or because they don’t feel comfortable suggesting an alternative view. The regulators said that their proposals would also support healthy work cultures, unlock diverse talent and improve the understanding of, and provision for, diverse consumer needs.

In its consultation, the FCA proposed two tiers of requirements. A minimum standard would apply to all Financial Services and Markets Act-regulated firms and a second tier of requirements would apply only to large firms where such additional measures are likely to be more effective (a large firm is one with 251 or more employees).

Tier 1: requirements for all firms

The FCA is proposing to include non-financial misconduct explicitly within the existing Conduct Rules and in Fit and Proper assessments. Rather unhelpfully, the FCA hasn’t defined ‘non-financial misconduct’ and there’s no indication as to whether it will do so specifically, but the consultation paper does give examples of such misconduct as bullying, harassment and sexual or racially motivated offences. Human Resources professionals reading this article will immediately appreciate the significant crossover this creates between the regulatory management of staff and the ‘standard’ HR management of staff, along with the huge impact that a workplace out of step with modern DEI requirements will have on its ability to maintain compliance.

The FCA’s Code of Conduct, COCON, will be expanded to make it clear that it covers serious instances of non-financial misconduct towards employees. There will also be guidance on what types of behaviour will fall within the expanded scope of COCON and when such behaviour will amount to a breach of the Conduct Rules (for instance, whether it’s repeated behaviour); as well as what conduct will be out of scope because it relates to someone’s personal life – there’s some interesting discussion around the boundaries between work and personal life in the context of social events with colleagues.

The FCA additionally plans to explain that bullying and similar misconduct within the workplace is relevant to fitness and propriety, and will be taken into account during fit and proper assessments. However, what’s different to the changes to the COCON guidance is that serious misconduct in a person’s private life will also have to be taken into account when applying the fit and proper test.

Tier 2: requirements for large firms

One of the key proposals for large firms is to establish, implement and maintain a DEI strategy. These DEI strategies will contain, as a minimum:

  • The firm’s DEI objectives and goals, a plan for meeting them and measuring progress
  • A summary of the arrangements in place to identify and manage any obstacles to meeting those objectives and goals, and
  • Ways to ensure adequate knowledge of the DEI strategy as a whole among staff.

The FCA has also proposed that these strategies must be made available and free to obtain, for example by including them on the firm’s website.

Large firms must set appropriate diversity targets to address underrepresentation. The FCA expects firms to set at least one target for each of the board, the firm’s senior leadership and the employee population as a whole, taking into account their DEI strategies and current diversity profiles, although the FCA is not going to mandate what these targets should be, or which demographic characteristics they should cover.

Firms will also be required to collect, report and disclose DEI data (e.g. on disability status and ethnicity, with optional reporting on socio-economic background and gender identity). The regulators plan to use this data to produce an industry-wide benchmarking report so firms will be able to track their progress against that of the competition. This will enable the regulators to ‘name and shame’ those who aren’t making such good progress, with the aim of encouraging firms to be far more proactive in raising standards.

The PRA consultation is largely the same as the FCA’s but there is a big difference in terms of senior management accountability. The PRA is proposing that the ‘culture’ prescribed responsibilities (normally held by a firm’s chair and CEO) will be expanded to include responsibility for developing and implementing the firm’s DEI strategy. This means that senior managers’ statements of responsibility will need to be updated to reflect this. For firms not in scope of the culture prescribed responsibilities, at least one senior management function holder should have responsibility for the strategy noted in their statement of responsibility. This senior manager responsibility for DEI is noticeably absent from the FCA consultation, so it will be interesting to see whether the regulators align on this point at a later stage.

Sexism in the City inquiry

The second development in DEI in financial services is the Treasury Committee’s Sexism in the City inquiry. The Committee published its findings in March 2024, expressing disappointment in the lack of progress made.

Though there was evidence of some improvement, the Committee was particularly dissatisfied with the lack of significant progress with regards to sexual harassment and bullying, such as serious sexual misconduct. It concluded that many firms were not prioritising DEI, instead treating it as a tick-box exercise. The Committee made a number of recommendations for the Government and regulators (with some points in direct conflict with the FCA and PRA’s proposals above), including:

  • The Government should strengthen whistleblowing legislation to provide greater protection in sexual harassment cases
  • The FCA should launch a campaign to publicise its whistleblowing line and to raise awareness that non-disclosure agreements (NDAs) cannot prevent an individual from reporting harassment to the FCA
  • The Government should pass legislation to ban the use of NDAs in harassment cases
  • All financial services firms should sign up to the voluntary Women in Finance Charter
  • The FCA and PRA should drop their plans for extensive DEI data reporting and target setting, which would be costly for firms. Instead, firms’ boards and senior leadership should take more responsibility for improving DEI
  • The Government and regulators should encourage firms to:
    • Consider equalising parental leave for men and women
    • Be transparent about their parental leave policies, including when advertising roles
    • Advertise as many flexible and part-time roles as possible to attract a wide talent pool, especially women
    • Recognise the impact of menopause and establish policies and support for those affected
  • The employer size threshold for pay-gap reporting should be reduced from 250 to 50 employees
  • The Government should pass legislation to:
    • Mandate the inclusion of salary band information on job ads
    • Ban prospective employers from asking for salary history.

Government and regulators’ responses to the inquiry

Last month the Committee published HM Treasury, FCA and PRA’s responses to the inquiry. The responses were broadly supportive of the report, although each had reservations in respect of the Committee’s approach in some areas:

Non-financial misconduct: in accordance with the Committee’s recommendations, the FCA is now prioritising its work on non-financial misconduct, including sexual harassment and bullying, and will share its findings with the Committee in due course.

NDAs: the Treasury shared the Committee’s concerns that NDAs are being used to intimidate victims of sexual harassment and highlighted the Government’s commitment to legislating to provide clarity that NDAs cannot be legally enforced if they act to prevent victims reporting a crime, which was brought in via the Victims and Prisoners Act 2024. It noted that NDAs have a legitimate role in protecting commercially sensitive information, such as between employer and employee at the end of an employment relationship, but that an NDA would be unenforceable if it prevented whistleblowing in the form of protected disclosures. As a result, the Government has not committed to taking forward the Committee’s recommendation to introduce a total ban on the use of NDAs in harassment cases.

Whistleblowing: the PRA will continue to work closely with the FCA, which is currently considering how it can improve its approach in this area.

Diversity data reporting and target setting: in their response, the regulators did not commit to dropping their plans for DEI data reporting and target setting, although the FCA agreed that it would not want any data collection to be a ‘tick-box’ exercise without an appropriate focus on outcomes. The PRA explained that its data reporting proposals were informed by evidence drawn from the experience of the legal sector, which has seen an improvement in diversity since data reporting was introduced. However, Nikhil Rathi, the FCA CEO, later confirmed to the Committee that the FCA was pausing this initiative, an announcement that came as a surprise to many who had understood the regulators to be pressing ahead with these proposals irrespective of the Committee’s recommendations. It is also surprising given the FCA’s drive to become a data-led regulator.

Flexible working: the Government has no plans to require firms to undertake equality impact assessments or legislate for the mandatory listing of flexible working opportunities. Instead, it cited its action to give employees the right to request flexible working from the outset of any employment.

Pay gap: Treasury’s view is that reducing the employer size threshold for pay-gap reporting would not be practically or statistically effective. It also confirmed that the Government will not be legislating to mandate the inclusion of salary band information on job ads at this time, as it wants to learn from the experience of other countries that are currently exploring legislative options. Separately, the FCA and PRA have committed to monitoring the impact that the removal of the bankers’ bonus cap has on gender pay inequality.

What’s next?

It’s fair to say that the waters are murky around where the financial services sector is headed next on its DEI journey. With Parliament now dissolved, the Government’s views, in particular its commitment to legislating to provide clarity on NDAs, may be redundant. The upcoming General Election may also have a bearing on the regulators’ plans. For example, if Labour wins as has been widely predicted, its plans for mandatory ethnicity and disability pay-gap reporting could well impact some of the FCA’s proposals.

Despite the political uncertainty, the FCA and PRA will likely still publish feedback statements to their consultations, as well as develop final rules at some point in H2 2024. However, while previously it seemed clear that the FCA would be going ahead with the entirety of its proposals, the likelihood now is that it will only be proceeding with the plans that relate to tackling non-financial misconduct.


Firms should be thoughtful around investment in new data-gathering infrastructure, given this might not be the route that the FCA ultimately chooses to take. It seems beyond question, however, that non-financial misconduct will become squarely part of the regulation of employees in the financial services sector. Internal HR procedures will have to be clear, reflecting best practice and administered by well-trained managers who cope well with difficult conversations.

Culture is set from the top of an organisation. If DEI strategy is dismissed at board level as unimportant, this will likely turn into real financial, regulatory and legal pain for that organisation within the next couple of years, bringing the risk of poor press coverage, difficulty in attracting and retaining talent, along with expensive litigation.

This article was written for, and published in, Compliance Monitor.


The authors would like to thank Karen Plumbley-Jones, Harry Wells and Amy Battinson for their help in the preparation of this article.

This article is for general information only and reflects the position at the date of publication. It does not constitute legal advice.