At a glance

  • Regulators across jurisdictions are reinforcing their commitment to meaningful diversity and inclusion (“D&I”) as a means of improving governance, culture and practical decision-taking in financial services firms. They have flagged the risk that firms are taking no more than “token” actions in practice, and are clear they expect firms to make material progress in these areas.
  • In the UK, acknowledging that D&I are complex issues, the FCA and Bank of England (BoE)/PRA are publicising the D&I areas on which they, as employers, are focusing. These include leadership and accountability for D&I; data and reporting; the development of a diverse talent pipeline; and practical promotion of inclusive cultures.
  • Neither regulator has explicitly stated that it will treat its own actions as yardsticks against which to assess regulated firms. Nevertheless, given the degree of public emphasis now being placed by both regulators on their own D&I strategies, we think it likely that, increasingly, both regulators’ day-to-day supervision will assess firms’ practical progress on the issues, and in the areas, they themselves are looking to address internally.
  • Accordingly, this blog explores the areas of challenge and questions that we think PRA and FCA supervisors are likely to raise on all aspects of D&I within firms’ employee lifecycles.

Intended Audience

Board Members, Senior Managers, and Heads of HR

Overview: why diversity and inclusion have become core regulatory issues

Globally, the regulatory message has been that meaningful D&I improves culture and decision-taking within financial services firms, so reducing the risk of firm failure, financial instability and harm to consumers and markets. Drawing on the hard lessons of the financial crisis, regulators are acutely aware of the dangers of “group-think” both in undermining the quality of board decision-taking and in creating a culture in which staff are dis-incentivised and reluctant to escalate developing concerns or “bad news”. To ensure effective challenge within firms’ decision-taking, regulators expect firms’ approaches to D&I to be focused on encouraging a broad group of people, with varied backgrounds, experiences and perspectives to consider and challenges issues from different angles. As Marc Teasdale, Director of Wholesale Supervision at the FCA said in a recent speech “people with different life experiences […] can bring significantly new thinking, and new approaches to problem-solving and decision-making”[1].  

Regulators have signalled growing impatience with a perceived lack of progress being made by firms in D&I. In a letter to Board Chairs (March 2020), the PRA highlighted that compliance with its requirements on firms having diversity policies in place is “still not universal”[2]. As part of its general supervision of firms, the PRA is expecting Chairs to demonstrate how they have satisfied themselves that their firm is meeting regulatory requirements and to set out the remedial action they have taken where needed.

The FCA has gone further still. In a recent update (September 2020), it observed that, despite increasing recognition of the need for greater diversity at senior levels, progress, to date, had been “limited” and it was clear that “having policies is not enough”[3]. The FCA expects firms to “take action” in relation to D&I and “monitor their effectiveness to assess if the changes they implement are bringing tangible outcomes”. To this end, the FCA’s update says that it will be focusing on its role on “diversity and inclusion as a regulator over the coming year”[4] and has highlighted specific expectations that Chairs of Remuneration Committees assess the extent to which remuneration policies positively promote D&I across all protected characteristics[5][6][7]. 

Both regulators are, however, increasingly alert to “tokenism” by firms; that is, appointing individuals who give the appearance of widening diversity at a firm but who fundamentally share the same perspectives and outlook as existing staff and therefore represent “comfortable” appointments who will be likely to ensure “more of the same”. Christopher Woolard, when he was the FCA’s Executive Director of Strategy and Competition, captured this concern by observing that genuine D&I will not be achieved merely “by employing the sisters of your existing board members”[8].

The FCA sees a risk that firms will deprioritise their focus on culture and diversity as they respond to the immediate risks presented by COVID-19. However, it expects firms to remain focused on maintaining a healthy culture and make “material progress” towards tackling inequality and creating an inclusive work environment[9]. If they fail to do so, Nikhil Rathi, the newly appointed CEO of the FCA, has emphasised that the FCA is willing, in time, to consider interventions including the rejection of applicants for Senior Manager positions:

If we are not seeing that progress happening, then at some point it becomes a supervisory matter, and it may even become a matter that we would need to deal with in how we decide whether to approve an appointment or not.”[10] 

Building a diverse and inclusive workplace: lessons from the UK regulators

Despite a number of industry-wide initiatives and determined effort by many firms, diversity at senior levels in financial services has remained low. Figures from the FCA indicate that in 2019 women made up 17% of approved individuals (approximately the same as in 2005) whilst a report from the Investment Association shows that just 1% of investment managers identify as Black, African, Caribbean or Black British[11]. 

Whilst reiterating the supervisory imperative for firms to make greater progress towards more diverse and inclusive cultures, both UK regulators recognise that diversity and inclusion are complex issues, and improvements take time to achieve. As Christopher Woolard has said: “[t]he truth is that this is hard, let’s not kid ourselves about that”[12].

Acknowledging the challenges faced by firms, the PRA and FCA have begun increasingly to share how they, as employers, tackle D&I within their own institutions.

We emphasise that neither regulator has said explicitly that it will use its own actions as yardsticks against which to assess firms. Nevertheless, given the degree of public emphasis both regulators are placing on their own D&I strategies and initiatives, it seems reasonable to infer that they will take an active interest in the action and progress being achieved by firms in the areas they themselves are prioritising. We set out below some of the key areas of focus the FCA and BoE/PRA have set out.

We also set out some of the specific initiatives highlighted by the FCA and BoE/PRA, which may act as a useful reference point for firm looking to develop their own approaches to D&I. 

Leadership and accountability

In a 2019 speech sharing practical ideas on building a diverse and inclusive working environment, Anna Sweeney, Director of Insurance Supervision at the PRA, argued that the “first and most obvious” factor in improving diversity is ensuring that leaders make clear it is an important topic[13]. Accordingly, she highlighted that D&I is a strategic priority for the Governor and BoE Executive and the BoE drives management accountability for D&I through, inter alia setting “challenging targets” on gender and ethnic representation.

At the FCA, D&I objectives are an important part of the accountability framework for Manager grade and above. Remuneration is linked to individual performance against objectives and Executives are held to “personal account” for progress on achieving D&I.

Examples of specific initiatives taken by the FCA and/or the BoE include:

  • Challenging targets” for gender and ethic representation at both senior management level and below senior management level
  • Remuneration linked to individual performance against D&I objectives
  • Forming of an Executive Diversity Committee
  • Annual “challenge sessions” where senior Executives are held to account for progress on D&I

D&I data

Christopher Woolard has highlighted the risk that firms, when assessing the outcomes achieved by their D&I strategies, take superficial progress at face value or make decisions based on little or no evidence. To achieve durable change on D&I, organisations’ tactics must be “practical, meaningful and based in evidence”. Accordingly, the FCA has prioritised developing and evolving its own D&I data and reporting to highlight trends in progress and deterioration better, and identify areas for specific focus.

Examples of specific initiatives taken by the FCA and/or the BoE/PRA include:

  • Diversity dashboard capturing gender and ethnicity data across all divisions and grades including: application to hire rates, staff turnover, acting up opportunities, employee survey feedback and internal development programmes
  • Developing more granular ethnicity data e.g. breaking down the grouping of black, Asian and minority ethnic (BAME) people in pay gap reporting

Developing the talent pipeline

As set out above, regulators consider that the challenge of achieving diversity at senior levels cannot be addressed through tokenism or, in the words of Megan Butler, Executive Director of Supervision at the FCA, by “parachuting in a handful of senior women”[14]. Accordingly, they are seeking to build a diverse long-term pool of candidates for future senior positions including through initiatives that encourage a wider range of people to consider a career in regulation, as well as attempting to reduce losses in their talent pipeline. 

Beyond recruitment and retention, regulators are focused on encouraging progression amongst staff and have programmes aimed at supporting identified groups (e.g. women, BAME, people with disabilities) advance by giving them to skills, experience and confidence to operate at the next level.

Examples of specific initiatives taken by the FCA and/or the BoE/PRA include:

  • Considering graduates from a broad range of universities/studies and developing training to help them develop the experience they need
  • Scholarships/paid internships to support students from identified groups (e.g. BAME)
  • Supporting flexible working for all, not just those with caring responsibilities
  • Career returner programmes (open to people of all genders).
  • Mentoring programmes to help identified groups of people progress

Support and training for an inclusive culture

In previous publications, we highlighted the supervisory focus on whether firm cultures promote “psychological safety” amongst staff such that they feel able and empowered to report their concerns and bad as well as good news. Consistent with this focus, Anna Sweeney has argued that retaining and supporting progress amongst a diverse workforce will be sustainable only if all staff feel comfortable being themselves, and are willing and able to offer their own views and opinions. Accordingly, the BoE/PRA and FCA are focused on creating inclusive working environments and encouraging inclusive behaviours amongst staff.

The BoE acknowledges that discussions around diversity and inclusion can be difficult, even where well intentioned, and it has developed initiatives to help support staff and managers during such conversations.

Examples of specific initiatives taken by the FCA and/or the BoE/PRA include:

  • Training aimed at encouraging inclusive behaviour and culture such as inclusive recruitment training
  • Initiatives aimed at encouraging staff to feel more comfortable talking about race and share their own experiences

D&I questions for Board Members and Senior Managers

Based on the areas of focus identified, and our own experience of working with firms, we set out in the Appendix examples of the types of questions supervisors may raise on all aspects of D&I within firms’ employee lifecycles.


Regulators across jurisdictions are firmly of the view that D&I lead to better decision-making within financial services firms, reducing the risk of harm to consumers and markets.

We think that, informed by their own D&I strategies and experience, the PRA and FCA in particular will begin to probe whether D&I is being appropriately prioritised by Senior Management and whether D&I outcomes are monitored, not just for senior levels, but throughout the firm. We expect that they will be increasingly critical of actions they consider tokenistic or “window dressing” and will expect Board Members and Senior Managers across sectors to:

  • Demonstrate, including through data and MI, the progress their organisations are making towards achieving more diverse and inclusive governance and workplaces at all levels
  • Have in place credible plans to build a diverse talent pipeline
  • Promote a culture that values the contribution of individuals from a wide range of backgrounds






[6] The UK Regulators’ efforts in improve diversity and inclusion have been mirrored by wider, voluntary initiatives by the UK government and trade bodies.  In 2016, HM Treasury launched the Women in Finance Charter to support the progression of women into senior roles in the financial services. More recently, the Confederation of British Industry (CBI) launched a campaign to increase racial and ethnic participation in British businesses, calling on them to set and publish clear targets for greater racial and ethnic diversity at the Board, ExCo and ExCo minus one.

[7] Other regulators have raised similar concerns regarding firms’ progress on D&I. In Ireland, the Central Bank’s recent thematic report into D&I amongst insurers found that progress in recognising the importance of D&I has been too slow and the “lack of join up between diversity and inclusion policies and decisions being taken at the most senior levels of firms is striking”. In a similar vein, the EBA’s report on the benchmarking of diversity practices (February 2020) found that 41% of firms do not have a diversity policy and called on them to consider additional measures to promote gender balanced boards.