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FCA abandons enforcement and diversity and inclusion proposals

On 12 March 2025, the Financial Conduct Authority (FCA) confirmed by a letter to the Treasury Select Committee their intentions to shelve two highly debated proposals: the enforcement ‘name and shame’ proposal and the diversity and inclusion (D&I) proposal. 

Enforcement 

The ‘name and shame’ enforcement proposal aimed to publicise FCA investigations prior to the investigation being concluded when a public interest test was met. After extensive public debate and lobbying from major financial sector stakeholders, this proposal was withdrawn. The Lloyd’s Market Association (LMA) submitted that no changes were necessary to meet the FCA objectives and that naming the firms early in the investigation process would lead to material reputational consequences. It could negatively affect share prices, disrupt daily operations and increase costs related to public relations, particularly in cases where the investigation is closed without action. Additionally, senior management could face significant harm to their livelihoods, careers and mental wellbeing. Overall, this would have damaged the global perception of the UK financial services sector, as well as public confidence in the industry, without reasonable justification.

In the letter to the Treasury Select Committee, the FCA has outlined three changes to its enforcement approach. This includes confirming they are investigating if it has already become public, publicly notifying instances of potentially unlawful activity by an unregulated firm, or where regulated firms are acting beyond their scope, and publishing details of investigations on an anonymous basis.  

The LMA is pleased that the FCA has listened to the feedback. These changes provide firms with greater control over the disclosure of an FCA investigation, whether through voluntary statement or when compelled due to their company’s status. The LMA supports the public announcement of unlawful activity by unregulated firms as it helps legitimate firms avoiding trading with unregulated entities. The LMA continues to have reservations about publishing details on an anonymised basis as we consider it has the potential to lead to excessive speculation, resulting in unrelated firms denying involvement while ultimately pressuring the FCA into announcing the name of the firm. 

Non-financial misconduct 

The FCA has said that they remain committed to tackling non-financial misconduct within the regulated sector. However, like D&I, this area of law is subject to legislative developments.

The Employment Rights Bill, now at the committee stage in the House of Lords after a second reading on 27 March, aims to strengthen protections against sexual harassment.

It is possible that similar expectations on the protection of employees from other types of harassment may be provided for in the Equality (Race and Disability) Bill. 

In response, the FCA has deferred its ‘next steps’ of this proposal until June 2025 to better align its policy with any forthcoming legislation.

D&I

The FCA and the Prudential Regulation Authority (PRA) issued a joint D&I proposal in 2023, aimed at boosting diversity in financial services and changing the culture within the city. The proposal required firms to have a D&I strategy to set out how they would meet those objectives. It would have required firms to collect, report and disclose data against a set of characteristics, as well as set targets to address under-representation. The proposal was intended to be a flexible and proportionate requirement, with obligations and targets varying depending on the size of the firm. The LMA was generally supportive of these requirements, bringing the wider financial services in line with Lloyd’s managing agents that have been reporting centrally since 2020. 

However, the FCA has decided to put this initiative on hold until after the “substantive implementation of any new legislation in this area.” 

Some aspects of this initiative are already making their way through parliament in the Employment Rights Bill, including the need for Equality Action Plans for gender equality. 

Other new legislation is the proposed Equality (Race and Disability) Bill, a key government initiative to break down the barriers to opportunity for all. 

Although the full parameters of any other new bill(s) have not yet been confirmed, it is assumed on the basis of the Labour 2024 manifesto and from other government sources that the new legislation will be drafted to deliver the following measures:

1. Extending the right of ‘equal pay’ claim from solely protecting women to other characteristics (Black, Asian and minority ethnic workers and disabled workers). 
2. Disability and ethnic pay gap reporting for large employers.
3. Preventing the outsourcing of services to avoid equal pay. 
4. Establishing an Equal Pay Regulatory and Enforcement Unit.

These measures form part of the broader government initiative, ‘Make Work Pay’, which aims to strengthen and expand the existing employment legislative framework. If a worker with a protected characteristic believes they are not receiving equal pay compared to someone in the same role, they can file an ‘equal pay’ claim with an employment tribunal. Previously, their only recourse would have been a direct or indirect discrimination claim. This change extends the right to equal pay claims – which were previously limited to gender – to include race and disability. Similar to gender pay gap reporting requirements, we anticipate that the ethnic and disability pay gap reporting will likely be required for those employers who employ more than 250 members of staff. The specific functions, purpose and limitations of the Equal Pay Regulatory and Enforcement Unit are not clear yet, and we await further guidance and supporting materials from government and any implementation legislation. 

This legislation is likely to mean that there would be a statutory requirement for companies to provide ethnic and disability pay gap data on an annual basis. The Office for Equality and Opportunity have now opened a consultation to seek views on implementing mandatory requirements that will shape proposals for including this requirement in the upcoming Equality (Race and Disability) Bill.

Irrespective of any new reporting requirement, existing legislation may already provide remedies in these areas of potential discriminatory outcomes, so we wait to see what the legislation adds.