The UK’s top financial regulators have announced they will not implement planned diversity and inclusion rules for City firms, intensifying concerns about a broader global rollback in equity, diversity and inclusion (EDI) initiatives.
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) — the regulatory arm of the Bank of England — confirmed yesterday they would abandon their plans to introduce mandatory diversity and inclusion reporting, including gender and ethnicity pay gaps.
Instead, both bodies indicated support for “voluntary industry initiatives” to encourage greater workplace diversity, citing the desire to avoid creating additional “regulatory burdens” for companies.
The decision coincides with new research by Mental Health First Aid (MHFA) England, which revealed nearly a third (30%) of UK employees have experienced colleagues rejecting others for being different. Additionally, just 41% feel they can be their authentic selves at work, down significantly from 66% in 2020 — a decline that experts say undermines psychological safety, mental wellbeing and overall productivity.
Regulators Retreat Amid Growing Global Trend
The UK regulators’ move mirrors an accelerating international trend. Large companies including Google, Meta, Amazon and McDonald’s have recently scaled back or cancelled DEI initiatives, influenced partly by political pressure in the US, where President Donald Trump axed diversity policies at federal agencies.
Sam Woods, deputy governor of the Bank of England and head of the PRA, explained in a letter to parliament’s Treasury committee that while regulators acknowledged the benefits diversity brings — such as better governance, improved decision-making and reduced “groupthink” — they would focus instead on existing supervisory practices rather than imposing new diversity obligations.
Many financial companies reportedly advised regulators against introducing additional reporting requirements, arguing they would duplicate government measures already being considered and impose unnecessary costs.
Drop in DEI Threatens Employee Mental Health
The decision to drop formal diversity reporting comes despite substantial evidence linking inclusive workplaces with higher employee engagement, better mental health and increased productivity.
Mental Health First Aid England’s research, conducted with Henley Business School, surveyed 2,000 employees and found significant repercussions for employees unable to express their whole identities at work:
- 34% reported negative effects on their mental health.
- 36% indicated reduced engagement at work.
The study also highlighted particular vulnerability among groups with protected characteristics. Over half (54%) of Black employees said being unable to bring their full selves to work harmed their productivity. Additionally, 51% of gay or lesbian employees reported significant mental health impacts, and just a quarter of workers with mental health issues felt able to be open in the workplace.
Sarah McIntosh, chief executive of MHFA England, warned businesses against rolling back DEI initiatives, emphasising that flexible and inclusive workplace cultures support employee wellbeing and lead to more resilient, adaptable organisations.
“Rather than reverting to a workplace of the past, just because that’s what those that shout the loudest are telling us to do, we should focus on making continued progress towards workplace policies that help ensure work works for everyone,” she said.
McIntosh added that the “working world has changed dramatically in recent years, and a rigid, one-size-fits-all structure of what a workplace should be risks disengaging and excluding sections of the workforce.”
She said there were now risks to talent retention, performance and productivity. “A more flexible, inclusive approach will not only support employee wellbeing but also create a more resilient and adaptable workplace for the future.”
City Firms Face Criticism Over Gender and Ethnicity Gaps
The PRA and FCA’s decision has sparked criticism from equality campaigners and comes in the wake of scrutiny over the City’s ongoing problems with sexism, misogyny and diversity. A Treasury Committee inquiry last year found little progress had been made on tackling gender inequality since 2018, despite widespread awareness campaigns and public pressure.
Regulators initially planned stronger measures to address these issues, including the possibility of naming and shaming firms with poor records. However, these proposals have also now been scrapped, in a further signal of regulatory pullback.
Industry observers warn this shift could lead to stagnation or even regression in workplace equality, leaving marginalised employees facing renewed challenges.
A ‘Critical Moment’ for Workplace Inclusion
Dr Melissa Carr, director of Equity, Diversity and Inclusion at Henley Business School’s World of Work Institute, described this as a “critical juncture,” cautioning that reducing DEI efforts risks disengaging and excluding talented individuals at a time when businesses need diverse perspectives more than ever.
“For those companies that are stepping back on this work, there are many others that are doubling down and showing their commitment,” she said. “This research highlights that there is work to be done so that everyone can thrive within the workplace. If we can all work towards that, it will be better for people, businesses, and society.”
While UK regulators say they remain committed to diversity, the emphasis on voluntary compliance rather than enforceable rules has raised concerns about the seriousness of corporate commitments.
Campaigners are now urging businesses and regulators to reaffirm support for genuine workplace diversity, emphasising that inclusion is not just an ethical imperative but essential for long-term organisational health and competitiveness.