Global menu

Our global pages


Understanding approaches to diversity and inclusion in UK financial services

  • United Kingdom
  • Employment law
  • Financial services disputes and investigations
  • ESG
  • Financial services


The FCA has published the findings of a review of how UK financial services firms are designing and embedding strategies to improve diversity and inclusion (D&I)

Diversity and inclusion has had increasing prominence in the Financial Conduct Authority’s (FCA) communications and strategy over recent years. On 12 December 2022, the FCA published Understanding approaches to D&I in financial services, which sets out the findings of a multi-firm review of approaches to designing and embedding D&I strategies in the sector. The review looked at a sample of 12 firms across multiple sectors and aimed to:

  • give firms and others a picture of the current position, allowing leaders to consider where initiatives might be relevant in their own firms,
  • encourage further industry action, and
  • help the FCA to develop a supervisory approach that it can use for future engagement with firms.

The FCA has also set out (at Appendix 1) some evidence of the effectiveness of the most common actions identified by the firms involved in the review.

The findings of the review are relevant to all regulated firms.  Firms should consider the findings carefully and use them to assess and inform their own D&I strategies and practices.

The review follows last year’s joint discussion paper by the FCA, the Prudential Regulation Authority, and the Bank of England, which sought views on policy options to improve D&I in financial services.  A consultation on more detailed policy proposals is expected in 2023.

What did the FCA find?

General observations

A generic approach to D&I

The FCA found that the strategies of many of the firms it reviewed were generic, lacking a clear articulation of purpose and how actions would achieve their D&I goals. Firms were not making good use of the diversity data they collect to identify the best remedies, nor were they tracking the effectiveness of initiatives and interventions.

D&I is a cultural issue

The FCA observed that very few of the firms seemed to have understood that D&I is “a fundamental culture issue”. Firms were directing their efforts at actions to measure diversity and address specific D&I issues rather than on building inclusive cultures. This is troubling as it suggests that the firms involved in the review have not yet absorbed the FCA’s repeated and consistent messaging that D&I is at heart a cultural issue.

In the FCA’s view, firms that fail to grasp this point are “likely to struggle to make sustainable, meaningful change without greater attention to culture, including a long-term plan to deliver change, backed by senior level commitment.

What about customers?

The FCA observed that none of the retail firms involved in the review had undertaken substantial work on the diverse needs of their customer base. This is a notable gap, as understanding and responding to customers’ needs is essential if firms are to comply with the incoming Consumer Duty.

Key points

The review highlighted the following key points:

  • Firms’ D&I strategies were not consistently based on a clear assessment of their specific circumstances and challenges, resulting in insufficiently focussed actions and initiatives.
  • There was also a lack of systematic tracking of progress, leading to a lack of understanding about what works. This also creates a risk that firms expend considerable resource without seeing meaningful results.
  • Many of the firms were unclear about the business rationale for D&I. This creates a risk that D&I is seen as an ‘optional extra’ or that staff become fatigued and disengaged by ongoing initiatives.
  • In some firms, there was an over-reliance on training, network groups and allyship. The FCA’s view is that while these are important, they “will not alone bring about the kind of systemic change needed.
  • Firms which said that D&I initiatives could affect senior level pay and bonuses were generally unable to explain exactly how.
  • Where firms were part of global groups, they generally adopted a group-wide international strategy, without tailoring it to the circumstances of the UK firm or UK characteristics. Such firms tended to have less ambitious and well-defined strategies and often relied on global, rather than UK-specific, data.

Firms’ current performance

Looking at how the firms it reviewed were currently performing, the FCA made the following observations:

  • The predominant focus of firms’ D&I strategies was on gender, with ethnicity gradually receiving more attention.
  • Where firms had broken down ethnicity representation beyond a simple white/ethnic minority split, the data showed “clearly divergent outcomes for different ethnic minority groups.
  • By contrast, almost no attention was given to disability or neurodiversity, while work around sexual orientation was mainly limited to supporting employee network groups and “performative actions”, such as support for Pride.
  • There was also very little focus on social mobility, except at entry (i.e. recruitment) points, which left firms lacking information about the lived experience of their current employees. Socio-economic status is an area that has recently been under the spotlight in financial and professional services, particularly in light of Breaking the Class Barrier, a recent report by the City of London Corporation.
  • On gender and ethnicity, the main focus was on improving representation at senior levels. This is despite evidence that the biggest drop-off in representation is the step from junior to middle levels. The FCA noted that this approach “risks creating a culture where firms attempt to ‘poach’ diverse senior talent rather than develop their own pipelines”, which in its view is “not a sustainable approach and is unlikely to bring meaningful, long-lasting change.

Firms should be aware that by limiting their focus to gender and ethnicity, they are impeding their ability to understand and address wider D&I issues. This will leave them unable to achieve the ‘diversity of thought’ that the regulators are seeking.

A genuine commitment to D&I?

The FCA found that several firms focussed almost exclusively on gender diversity at senior levels, because there are external targets and expectations for it. This suggested a compliance-led, ‘tick box’ approach rather than a genuine commitment to D&I.

The importance of data

Good quality diversity data should form the basis of a firm’s D&I strategy and actions. The FCA observed the following issues around data: 

  • There was wide variation in data quality, mainly due to differing levels of success with staff declaration rates. Firms that achieved higher declaration rates had usually made efforts to increase trust and make effective use of employee engagement. Firms with better quality diversity data have a better understanding of their position and are better placed to decide which actions to take.
  • Few firms had actionable data beyond gender and ethnicity. Declaration rates on disability and sexual orientation were lower than for ethnicity, while declaration rates were better at the recruitment and onboarding stage compared to that from existing employees.
  • Poor quality diversity data limited firms’ ability to develop actions and targeted interventions and to analyse intersectionality (where an individual falls within more than one diversity group).
  • It appeared that firms were not making good use of their diversity data to inform their strategies. The FCA observed that firms “were not generally making significant efforts to get to the heart of the reasons behind their representation issues.” Few firms were using detailed data about promotion processes and work allocation, or qualitative feedback (such as focus groups, employee network groups and exit interviews) to provide insight. The FCA noted that qualitative feedback could help organisations to understand why there are divergent outcomes, not just where they occur.

How useful are specific D&I initiatives?

Commenting on specific D&I initiatives, the FCA made the following observations:

  • Firms’ strategies often relied heavily on measures such as training and information hubs. The FCA noted that while these initiatives have a role, research suggests that if they are the centrepiece of the strategy, they are unlikely to address ingrained, systemic biases or bring about cultural change.
  • Some firms appeared to have “devolved considerable responsibility to [employee] network groups and to the role of allyship”. While initiatives such as these can perform a useful role in providing support and opening up discussion about D&I, the FCA considers that they are unlikely to lead to significant change on their own. 
  • Sponsorship and mentoring for under-represented groups were often used as tools to improve representation. The FCA noted that while these actions are worthwhile, there are limits to the number of candidates these programmes can feasibly serve. There was also little awareness among firms that where selection for such programmes was discretionary, selection could be subject to bias.

Inclusion and culture

Inclusive cultures are central to the FCA’s work on diversity and inclusion, and the regulator made the following observations in this regard:

  • Although most of the firms involved in the review wanted to take steps to develop inclusive cultures, in many cases there was relatively little activity to build them. Few firms talked about “the behavioural biases that affect inclusion or the role of systemic discrimination”. Also, some firms did not seem to have recognised the importance of issues such as psychological safety to creating an inclusive culture. 
  • Current approaches to measuring inclusion rely mainly on staff surveys. While surveys have a role, they can only provide a high-level snapshot and cannot help firms to develop a deep understanding of culture. To address this gap, firms should consider the Financial Services Skills Council’s Inclusion Measurement Guide.  

What should firms do next?

Improving D&I in financial services is a key objective of the FCA and is central to its work on culture, so firms cannot afford to ignore the findings of this review. Commenting on the FCA’s work, Sheldon Mills (FCA Executive Director, Consumers and Competition) said recently, “There is growing evidence that a diversity of perspectives and thought, when part of an inclusive culture, results in better judgements and decision making.” The FCA has also highlighted research showing that firms with gender diverse boards have received significantly fewer misconduct fines. 

Against that backdrop, now is the time for firms to get ahead of the curve and take a closer look at their own approaches to D&I. The regulators have signalled their intention to introduce new rules and guidance in this area. Firms that do the work now will be better placed to build healthy cultures and respond to the regulatory change that is coming.