Bank of England Stops Diversity Rules for Financial Firms Amid US Policy Changes

The Bank of England has announced that it will not implement new regulations focused on diversity and inclusion within the financial sector. This decision aims to prevent overburdening firms with additional regulatory requirements at a time when economic growth is a priority.

The Prudential Regulatory Authority (PRA), which is the enforcement arm of the Bank, made this announcement on Tuesday. This change comes in light of significant moves by major companies in the United States to eliminate their diversity goals, a shift that has been influenced by recent political developments.

In a letter addressed to Meg Hillier, chair of the Treasury Committee in Parliament, PRA Chief Executive Sam Woods stated that the bank will keep a close watch on group-think risks within the institutions it oversees. However, it will not require these firms to report on their progress in improving gender and ethnic diversity.

This correspondence follows a parliamentary inquiry titled ‘Sexism in the City’ conducted by the Treasury Committee in 2024, which investigated issues of misogyny in the finance industry. The inquiry was a continuation of an earlier investigation initiated in 2018, after a wave of sexual harassment allegations rocked the sector.

The inquiry revealed that the financial industry has made only minor strides in addressing the gender pay gap and the so-called “alpha male” culture prevalent in many firms. It also noted a troubling lack of progress regarding sexual harassment and bullying, including instances of serious misconduct.

In his letter, Woods acknowledged the benefits of diversity and inclusion for improving decision-making and risk management in firms, as well as enhancing the competitiveness of the UK financial services sector in the long run. However, during consultations, firms expressed concern about avoiding unnecessary costs and duplication of efforts, particularly since the government is preparing to introduce new legal reporting requirements for businesses.

Woods pointed out that there are already legislative initiatives underway concerning gender action plans and pay gap reporting for disability and ethnicity. He emphasized that adding new mandatory reporting requirements on diversity could contradict the Bank's goal of reducing regulatory burdens.

This emphasis on minimizing regulatory red tape aligns with current sentiments from Chancellor Rachel Reeves, who has encouraged regulators to simplify regulations to foster economic growth.

Despite the changes in the US, UK employment rights minister Justin Madders expressed skepticism that British companies will follow suit by dismantling diversity goals. He referenced the rollback of diversity measures by some large American corporations, including Google, Meta, Amazon, and McDonald’s, after shifts in the political landscape under former President Donald Trump.

However, UK companies like Deloitte reaffirmed their commitment to diversity initiatives despite reports suggesting a shift in focus across the Atlantic. Meanwhile, Barclays’ CEO stated that their commitment to inclusion remains steadfast.

Woods concluded his letter by stating that no new regulatory rules regarding diversity and inclusion would be published until after the implementation of any new relevant legislation.

Banking, Diversity, Regulation