The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

2023 saw increased regulatory attention on diversity and inclusion, as UK financial services regulators published proposals to boost D&I across the sector, recognising that good diversity and inclusion practices promote healthy cultures, sound risk management, and facilitate better decision-making. Whilst, in isolation, the regulators’ proposals are not new to the DEI world, the scale of the proposals is bold and marks one of the largest attempts by a regulator to shift the dial on D&I in a sector. The proposals are wide-ranging and include requirements for in-scope firms to publish a diversity strategy, set diversity targets, disclose annual diversity data across a range of diversity strands, and report on inclusivity. In anticipation of a final policy statement and new rules being published by the regulators later this year, many firms are already revisiting their DEI practices to align with the regulators’ proposals, which will likely result in enhanced diversity reporting by firms in the coming years.

Conduct and workplace culture are also front and centre of the regulatory agenda and DEI is a core aspect of that, as the regulators intensify their efforts to tackle non-financial misconduct across the sector by proposing new rules and guidance in the aforementioned D&I consultations. The FCA also plans to launch a new survey for in-scope firms to disclose numbers of non-financial misconduct incidents across their workforces, along with methods for detection and resolution.

Alongside this intensified regulatory focus, firms have to grapple with evolving societal expectations on DEI from consumers, investors, and the workforce, and manage the increasing expectation on organisations to live by the values they commit to, whilst also navigating legal risks of unlawful positive discrimination and potential challenge to DEI initiatives resulting from a hardening of anti-DEI views by those who fear DEI detracts from profitability or positively discriminates against others.

In a rapidly evolving landscape, where law and regulation cannot always keep pace with societal trends, the UK financial services sector has an opportunity to set an example for other sectors and jurisdictions to follow in driving forward the DEI agenda. But firms must navigate this challenging environment carefully in order to mitigate legal risk and achieve long-term, sustainable, change.