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The Bank of England has said it will not bring in new diversity and inclusion rules for financial firms because it wants to avoid imposing extra “regulatory burdens” and costs, in the latest sign of a retreat from efforts to help underrepresented groups.
The Bank’s regulatory arm, the Prudential Regulation Authority (PRA), said it would instead support “voluntary industry initiatives” aimed at boosting diversity and inclusion in the financial sector.
The announcement coincides with a rollback in the US of diversity, equity and inclusion (DEI) policies that has accelerated under Donald Trump, and with a push by the UK government to reduce regulation to help stimulate economic growth.
Sam Woods, a deputy governor at the Bank who leads the PRA, wrote in a letter to Meg Hillier, the chair of parliament’s Treasury committee, that the watchdog was choosing to “remain alert to the risks of group-think” within its existing supervisory framework rather than asking companies to report what measures they were taking to improve representation of women and minorities in their organisations.
The move comes after an inquiry into sexism and misogyny in the City, by the influential Treasury committee, which examined barriers faced by women in financial services, and looked into whether progress had been made on the gender pay gap, stigma against working mothers, and the sector’s “alpha male” culture.
The committee renewed a 2018 inquiry into gender inequality in financial services, after a spate of sexual harassment allegations that rocked the business world, and explored what role regulators including the Financial Conduct Authority (FCA) should play in “combating sexual harassment and misogyny”.
However, a March 2024 report found that “not much” had changed in the intervening period, and it welcomed proposals by the PRA and the FCA to strengthen their non-financial misconduct rules and improve their ability to take action against perpetrators of sexual harassment.
In the letter published on Wednesday, Woods wrote that the PRA and FCA believed diversity and inclusion initiatives could benefit firms.
“We continue to think that an appropriate focus on diversity and inclusion in the culture of the firms we regulate can deliver improved internal governance, decision-making and risk management,” Woods wrote.
He added that such focus “can support both safety and soundness – through reduced risk of group-think – and the competitiveness of UK financial services over the medium to long term”.
However, after consultations with the companies it regulates, and with the Treasury committee, Woods said that financial firms did not want regulators to introduce new rules including gender and ethnicity pay gap reporting, at a time when the government was planning to bring in new legal reporting requirements for companies.
“Many of those who responded to our consultation wanted us to align our regulatory approach with related initiatives, to avoid duplication and unnecessary costs,” he wrote, in a move that could be interpreted as a response to the government’s call for UK regulators to do more to support growth.
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Woods added: “There is also a growing emphasis in our work on reducing regulatory burdens on firms while still delivering our objectives, and adding significant new requirements in this area could be seen as in tension with that approach.”
The Treasury committee has previously expressed its concerns that City regulators could require financial firms to collect and report diversity and inclusion data, and set targets, which it said “well run firms” should already be doing.
“We do not currently plan to publish new rules on diversity and inclusion, and do not intend to return to this question until after the substantive implementation of any new legislation in this area,” Woods wrote.
The regulators’ announcement comes after Donald Trump prompted a rollback of DEI programmes in the US, after he signed a series of executive orders overturning such measures. Several large US corporations, including Walmart, McDonald’s, Ford and Amazon, followed suit in either scrapping or scaling back their DEI schemes, while the Facebook owner, Meta, overhauled its content moderation to remove restrictions on topics such as gender and immigration.
