The Big Question: What do the FCA’s proposal U-turns mean for UKGI?

Gary Ward, director of operations and compliance at Broadway Insurance Partners 

This is the right decision from the FCA – and indeed the only real option – given how severe and how broad criticism of the public interest test proposal had been. 

We should consider the demands placed on the authority. It must ensure that the highest possible standards are complied with – something which everyone in our industry agrees with.

Following a government request in November 2023, this primary task of the FCA has an added dimension – namely, helping to encourage growth in the financial services sector.

The proposed policy, however, would have had the opposite effect and might have resulted in reputations being damaged. Trust is so important to what we do that any negative impact could have been disastrous, especially for smaller firms.

Transparency can protect consumers and maintain integrity, but regulation should achieve a balance between the two and – in this instance – it did not.

Although this episode has been unfortunate, I would prefer to focus on the positives.

Just as with the FCA’s pledge to roll back some of the regulatory burden arising from the implementation of the Consumer Duty rules, which were effective from July 2023, abandoning the plan to name and shame at least shows a willingness to listen.

If we can combine that with a less cyclical approach to regulation – no veering between a light and then heavy touch approach – we stand a far better chance of achieving the stable environment wanted by ministers, regulators and practitioners alike.

David Allison, head of intermediary consultancy south at Insurance Compliance Services

This was a surprise to everyone after how much the regulator has been banging on about diversity and inclusion (D&I) in recent years.

Sheldon Mills, executive director of consumers and competition at the FCA, made a speech in September 2021 where he said: “Diversity and inclusion are critically important to the FCA. Firms that are diverse and inclusive deliver better outcomes for shareholders, consumers and markets.”

Yet the regulator’s chief executive, Nikhil Rathi, has now written to the HM Treasury Select Committee suggesting that the regulator did not want to cut across all the D&I work the government is supposed to be doing itself.

However, he added that the FCA is ploughing on with its plans to tackle non-financial misconduct in financial services and promised an announcement on this by the end of June 2025.

The fact that the now dropped consultation, which was first announced in September 2023, stressed how vital D&I was in mitigating non-financial misconduct seems at odds with the FCA’s revised plans. I can’t work out what it actually wants. I guess we’ll know more by the summer.

Perhaps it has finally dawned on the FCA that firms are not generally very good at collating quality data – and for some firms, the proposed D&I reporting requirements were quite onerous.

Believe me, the total garbage it has been getting from the hated REP021 reports, regarding general insurance pricing information, must have been something of a wake-up call in that respect.

The scrapping of the FCA’s proposals to name and shame firms it is investigating was, in contrast, a no-brainer. Defamation lawyers everywhere were rubbing their hands in anticipation. They’ll have to find something else to do now.

Charlotte Gregory, partner at Capital Law

The FCA’s U-turn on its proposal to implement a public interest test for naming firms under investigation – dubbed ’naming and shaming’ – is not surprising. The scheme received wide backlash from the market and criticism from government committees. I believe this was the right call.

UK general insurance (UKGI) firms will be spared the public relations nightmare of being named in an investigation where it had not yet had the full opportunity to defend itself and where the FCA had not even made any final decision.

This U-turn should not be viewed, however, as the FCA backing off. The regulator is continuing with plans to confirm investigations already in the public domain and to talk more openly about current investigations on an anonymous basis.

The FCA’s five-year strategy, published in March 2025, involves the regulator focusing on fewer investigations, but acting faster.

Speed should be welcomed by UKGI firms, as investigations are a drain on resources and a distraction from getting on with the day job. I predict the theme of active supervision pre-enforcement stage, as we have seen in the past few years, will continue.

Dropping proposals around diversity targets and reporting on diversity data will perhaps be disappointing for some. However, the FCA is right to point out that government-wide proposals – which include the current consultation on ethnicity pay gap reporting, for example – need to be considered to avoid duplication.

Firms can and should continue to create a diverse and inclusive workplace. Creating a truly inclusive culture is key to that. UKGI firms that want to attract the best talent and thrive in an increasingly competitive and unstable marketplace will have these efforts at their core.

Branko Bjelobaba, principal at Branko

So, is the FCA abandoning its D&I efforts, reducing the heat under them, or simply aligning its efforts with the prime minister’s aims of reducing regulatory burdens and boosting economic growth?

In isolation, having the industry gather extra data and reporting it would not lead to a fundamental shift in greater D&I – but many diversity related initiatives need greater scrutiny.

The UK insurance industry has to do much more together to attract all manner of young people – we are simply doing very little right now and that includes around D&I.

Fundamental core issues around trust, honesty and decency are key. We need to compete with other trusted professions and somehow up the excitement level when it comes to offering a great career – in addition to showing young people that we are very diverse and inclusive.

The fact that there is no one voice when going into schools and universities means that we are simply an unseen option for many students. How many employers actually go into sixth forms and universities and then offer decent work experience? And why are we so bad at working together on this?

Having kick-started an industry conversation on new talent with our livery company in December 2024, I am pleased to be part of the task force set up by the Chartered Insurance Institute last year to reach out to all new talent.

I hope the whole of the industry backs us on this, as it is critical in ensuring our survival.

Kelly Thomson, partner and ESG strategy lead at RPC

Insurers should not view the FCA’s volte-face as a reduction in their responsibilities regarding diversity and inclusion.

Even without specific FCA rules and the threat of naming and shaming, insurers and entities within UKGI remain bound by equality laws that already embed key D&I principles.

For instance, to avoid claims of indirect discrimination, insurers need to be able to justify neutral policies – like working from office mandates – if they disproportionately impact particular protected groups, such as women or those with disabilities. The law recognises that treating everyone the same does not always result in equal outcomes.

Since October 2024, insurers have been legally required to take reasonable steps to prevent sexual harassment too.

Proposals within the Employment Rights Bill currently passing through Parliament would extend sexual harassment rules to explicitly include harassment by third parties – like clients and suppliers.

This means organisations will need to take proactive measures to foster speak up cultures and address harassment and non-financial misconduct appropriately. These are compliance and environment, social and governance (ESG) obligations just as much as they are human resources matters.

D&I considerations are not nice to haves or boxes to tick – they are essential to building strong, resilient businesses. When properly framed and implemented, D&I strategies can enhance working culture, diversity of thought and financial performance.

The FCA’s U-turn may shift the regulatory tone, but the duty on organisations to uphold D&I remains unchanged – and as critical as ever.