EU regulators accelerate DEI; US firms shift approach, UK halts work

European Union financial services regulators are seeking to accelerate their diversity, equity and inclusion (DEI) initiatives, just as companies in the US are shifting their approaches — rowing back on them or else rebadging them with a change of emphasis. UK financial regulators announced today they would drop DEI work.

Senior leaders at the European Central Bank (ECB) and the Central Bank of Ireland used International Women’s Day on March 8 to emphasise the importance of DEI as a positive factor on firms’ culture and the benefits of diversity of thought.

In contrast, the current US administration has sought to end DEI programmes across the federal government, including the relevant financial regulators.

Proposals dropped

The UK’s Financial Conduct Authority and Prudential Regulation Authority meanwhile, today announced they would drop future DEI work.

“In light of the broad range of feedback received, expected legislative developments and to avoid additional  burdens on firms at this time, the FCA and PRA  have no plans to take the work further,” the FCA said in a statement.  

Nikhil Rathi, the FCA’s chief executive, in a letter to the Treasury Committee, said the regulator was following the committee’s recommendation not to proceed with data collection. These were set out in CP 23/30.

“We also recognise there is a very active policy and legislative agenda, including on employment rights, gender action plans and disability and ethnicity pay gap reporting,” Rathi said. The regulator, therefore, did not currently plan to publish new DEI rules to avoid duplication and unnecessary costs.

US firms respond to DEI criticisms

Anti-DEI campaigners in the US have criticised financial services firmsʼ and asset managers’ inclusion and environmental policies. For instance, several Republican-led states have restricted or banned BlackRock from managing retirement or treasury funds because of its stance on environmental, social and corporate governance (ESG) investing.

The moves highlight just what is at stake for firms and why, following recent executive orders, companies such as Citigroup and Bank of America have ended their DEI programmes.

How this will play out is yet to be seen. Sustainability Magazine reported Bank of America and BlackRock changed programme names, for example, BlackRockʼs “diversity and inclusion” group was renamed the “opportunity and inclusion” group.

JP Morgan Chase chief executive Jamie Dimon is standing by his firm’s DEI work, however. According to Reuters, JP Morgan expects “to be criticised by activists, politicians and other members of the public” over its decision to stick with DEI.

Diversity of thought

Meanwhile, US firms could find themselves challenged by European regulators and investors for abandoning their equality and environmental policies. One of the UK’s biggest pension funds pulled £28 billion from State Street over concerns about its approach to environmental, social, and governance (ESG) recently, while moves to ditch DEI and ESG could attract regulatory scrutiny as EU authorities reaffirm their importance.

Gabriel Makhlouf, governor of the Central Bank of Ireland, wrote that diversity matters more than ever and “right now, more needs to be done to encourage greater diversity — in all its forms — in Irish regulated firms”. Diversity of thought is a key benefit, he said.

Makhlouf pointed to the growing body of research confirming inclusive diversity can bring benefits “to complex problem-solving, decision-making, governance, risk management, attracting talent, employee engagement and more”.

“We know that firms which are sufficiently diverse and inclusive are also better able to be proactive and forward-looking in managing risks and uncertainties facing their organisations and their customers. We know that diversity, whether of gender, age, ethnicity, educational and professional background, among other characteristics, is critical to developing an effective culture,” he added.