FCA - Understanding approaches to D&I in financial services

United Kingdom

Ensuring the D&I reality lives up to the rhetoric

The FCA has published the findings from its review of how financial services firms are approaching diversity and inclusion (D&I) strategies. The review is part of the FCA’s wider work to improve D&I in the financial services sector which includes the joint Discussion Paper, published in July 2021, in which the FCA, PRA and Bank of England discussed the issue and on which the FCA intends to consult in 2023.

The FCA conducted its review via 12 regulated firms – 8 with large gender pay gaps and 4 with relatively small pay gaps. The average pay gap for the financial services market is 26.6%, which is far higher than the average for the wider UK market which is 12.1%. In conducting its review, the FCA asked each firm for some basic information including about their D&I policy and strategy, target setting initiatives and D&I data used. The FCA also requested a 90-minute structured interview with a senior individual and any relevant specialists at each firm.

It is clear from the review that the FCA considers firms have much more to do in this area and we know that this is a key priority for the FCA.


While the FCA acknowledged a commitment to making progress, its review found that very few firms recognised D&I as a fundamental culture issue. While there was some acknowledged focus on diversity of certain groups, there had not been sufficient attention on inclusion of those diverse groups within the workforce. Some firms did not recognise that issues such as psychological safety are critical to an inclusive culture and that staff surveys do not provide an in depth understanding of culture. The FCA noted that none of the firms referred to the Financial Services Skills Commission’s Inclusion Measurement Guide, launched in July 2021, which includes a safe and speak up culture as one measure of a healthy workplace culture.

The review found that D&I strategies were often generic and did not take a holistic view encompassing diagnosis, action and measurement. D&I measures were most focussed on gender representation, with ethnicity starting to receive more attention. There was less focus on other demographic characteristics, such as disability, socio-economic background and neurodiversity. Improving gender representation at senior leadership levels was a major focus for firms, despite data showing that women and ethnic minorities are in fact most underrepresented at the junior to middle management level. The FCA considered that that could lead to firms poaching each other’s diverse senior talent, rather than developing their own talent pipelines which would be more sustainable.

The FCA found evidence of poor quality D&I data, caused in part by low declaration rates, which was preventing firms from taking targeted action to address D&I issues. The FCA noted an overreliance on training, network groups and allyship as D&I measures, which it said cannot on their own bring about the systemic change needed. The FCA considered that firms could make better use of detailed data about promotion processes and qualitative feedback from exit interviews to inform their D&I approaches. It also cautioned against reliance on global D&I data as opposed to UK specific data.

In terms of governance and accountability, although the FCA was told by most firms that Boards were engaged with D&I issues, the review was unable to confirm this based on the evidence gathered. While some senior managers had D&I as a performance objective, it was not always clear how that could actually affect a performance grade or reward in practice.

Next steps

Firms that were part of the FCA’s review have received written feedback letters and the FCA intends to follow up with those firms to assess their progress. Although the FCA makes clear that its review is not intended as guidance, it encourages firms to consider its findings in the development of their D&I strategies and practices.


The direction of travel is clear. The FCA expect firms to think about how they can advance D&I in the sector in a way that is embedded into their culture in order to deliver meaningful and long-lasting change.

For many firms, the momentum on D&I strategies has been building for the last few years and progress in this area has been rapidly accelerated by the Covid-19 pandemic and shift to hybrid working, which is often favoured by those from underrepresented groups such as those with disabilities, caring responsibilities and from lower socio-economic backgrounds. But firms must take care to strike the right balance and mitigate the risks of hybrid working by maintaining opportunities for collaboration, adequate oversight and control and avenues to speak up. Firms that are unable or unwilling to adopt hybrid working models will inevitably have to work harder to advance their D&I objectives.

Healthy cultures, where employees feel safe to speak up in the confidence that they will be listened to and without fear of reprisal, will be key to fostering trust among employees and achieving a diverse and inclusive workplace. Critical to this is ensuring that the D&I reality lives up to the rhetoric. Firms who are publicly committed to change must put their money where their mouth is when it comes to dealing with employees who raise concerns, whether they involve personal grievances or wider potential misconduct. Where firms fail to do so, they risk employee relations issues and a negative impact on D&I objectives as well as unwanted attention from the regulator. Certainly, the FCA has made clear that it will raise D&I questions in its engagement with firms and we are seeing this in practice in the context of senior manager applications and interviews and in its consideration of firms’ governance and succession planning arrangements.