Are equity, diversity and inclusion still priorities for UK firms?

Two major financial regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), have decided not to move forward with proposed new equity, diversity and inclusion (EDI) rules. They had published consultation papers in September 2023, outlining new rules to improve diversity and inclusion in the financial services sector.

If these plans had gone ahead, financial sector firms would have needed to publish an EDI strategy, set EDI targets, and collect and report certain data. The PRA's consultation paper highlighted that improving diversity and inclusion aligns with its primary objectives of safety, soundness and policyholder protection. It also emphasised that these proposals would support equity, accessibility and diversity, marking a positive step forward for the sector.

Why have the EDI rules been shelved?

FCA Chief Executive Nikhil Rathi recently announced that the organisation and PRA no longer plan to publish the new rules on diversity and inclusion but will continue to support voluntary industry initiatives. He mentioned that the government's plans to introduce disability and ethnicity pay gap reporting played a role in this decision, citing duplication and regulatory burdens as reasons for the withdrawal.

Commentators raise other reasons, suggesting this retreat (and others like it) could be linked to the US Government’s position on EDI measures. Casper Glyn KC, and chair of the Employment Lawyers Association, said of this that British businesses face a greater risk of legal action if they follow their US counterparts. As they could find themselves open to “adverse findings of discrimination” if they start to unpick policies designed to support and enable diversity. He also points out the UK law is different from US law. Therefore, businesses considering making any changes should seek legal and professional advice before doing so.

What should UK financial firms do?

For UK firms with strong ties to the US, views towards diversity could have significant implications on company culture. From an HR perspective, a commitment to EDI creates a well-rounded business that represents clients and the community, and promotes a more socially impactful business culture. Baroness Martha Lane Fox, Chair of the British Chambers of Commerce business group, supports this view. She comments that the UK still has “a long way to go” in terms of representation, pointing out that there is only one disabled person on the board of a FTSE 100 company and still very few female board members.

UK employees are protected by the Equality Act (2010), which guards against discrimination. However, EDI initiatives go further by proactively supporting diversity and inclusion, ensuring that such initiatives are meaningful rather than ideological. Doing the right thing has become increasingly important for businesses aiming to mature their own operations and positively impact wider society. Regular reviews of EDI initiatives are crucial to ensure they meet business and community needs, regardless of where you are based.

Creating a positive and inclusive work environment

It is undeniable that a well-formed EDI strategy has significant benefits. Diversity and inclusion allow a valuable range of perspectives, critical thinking and promote a healthier work environment. For a conversation about your EDI strategy and ensuring it remains relevant to your organisation and focused in the right areas, please get in touch with Kerri Constable or your usual RSM contact.