Britain’s top financial regulators have scrapped proposed new rules aimed at increasing diversity and inclusion in the financial sector, citing concerns over regulatory burdens on firms. The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) announced that they would not proceed with further regulation following their 2023 consultation, opting instead to wait for any new legislation before revisiting the issue.

Regulators Scale Back DEI Measures

The decision follows significant industry feedback urging regulators to align their approach with existing initiatives and avoid unnecessary costs. While both the PRA and FCA maintain that diversity and inclusion (D&I) contribute to better governance, risk management, and competitiveness, they acknowledged concerns over regulatory overreach. As a result, they will focus on voluntary industry initiatives rather than impose new reporting requirements.

Sam Woods, CEO of the PRA, stated that while D&I remains important, adding new requirements now could conflict with efforts to reduce regulatory burdens on financial firms. The FCA reached the same conclusion, reinforcing the UK’s broader shift toward a lighter regulatory approach in financial services.

“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” said Woods.

Bonus Cap Review Pushed to 2026/27

The regulators also confirmed that their review of the removal of the bankers’ bonus cap—which was highlighted in the Sexism and the City report—will not begin until the 2026/27 financial year. The delay reflects the time needed for firms to adjust their remuneration policies following the cap’s removal.

Global Trends and Political Backlash

The UK’s decision to step back from DEI-focused regulation aligns with a broader backlash against diversity, equity, and inclusion (DEI) initiatives in the United States. Following the inauguration of President Donald Trump’s second term, several executive orders rolled back policies supporting disability rights, minority protections, and low-income programs. In response, major Wall Street firms have scaled back their own DEI commitments, raising concerns about rising workplace inequality and bias.

RELATED ARTICLE: Berkshire Hathaway Drops DEI Language from Annual Report Amid Broader Corporate Shift

Legal experts believe these political and industry shifts influenced the FCA and PRA’s decision.

Noline Matemera, a partner at Osborne Clarke LLP, stated: “The repeated pushback on publishing final rules by the FCA and PRA makes this decision unsurprising. Whether this is the death knell for focusing on D&I in UK financial services remains to be seen.”

Regulators Walk Back Transparency Plans

Separately, the FCA has abandoned its proposal to introduce a “public interest” test for disclosing investigations into regulated firms. Lawmakers had criticized the idea, calling it “naming and shaming” and urging regulators to maintain current practices of publicizing investigations only in exceptional circumstances. However, the FCA will still explore ways to increase transparency by providing more details on anonymous cases and expanding disclosures on unregulated firms operating in financial markets.

Read the Full Letter by Sam Woods, CEO of the PRA Here.     

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