Board Diversity at FCA-Regulated Firms: What Still Applies
In 2023 the FCA and PRA proposed new rules on diversity and inclusion for regulated firms. In March 2025 they decided not to take them forward. That doesn’t mean board composition has dropped off the agenda. Listed firms still report against diversity targets, the regulators still test whether boards provide real challenge, and new rules on non-financial misconduct took effect in September 2026. This guide sets out what still applies and how it should shape searches for chairs, non-executives and Senior Managers.
What the Regulators Decided
The proposals in FCA CP23/20 and PRA CP18/23 would have required regulated firms to have D&I strategies, set targets, collect and report data, and treat serious non-financial misconduct as a fitness and propriety issue. On 12 March 2025 both regulators said they would not take forward the D&I rules for the time being. They cited legislation the government was developing, the risk of duplicating it, and the push to reduce regulatory burdens. The PRA said it didn’t intend to revisit the issue until any new legislation had been substantively implemented. See the PRA’s statement.
The regulators said they still saw value in a focus on D&I for governance, decision-making and risk management. They simply chose not to write new rules.
What Still Applies
| Requirement | Who it applies to | What it means |
|---|---|---|
| Listing Rules diversity targets | Companies with equity listed in the UK, including listed banks, insurers and investment firms | Comply or explain against targets: at least 40% women on the board, at least one senior board position held by a woman, and at least one director from an ethnic minority background; with numerical disclosure in the annual report |
| UK Corporate Governance Code | Premium-listed companies, and many large regulated firms that follow it voluntarily | Board appointments and succession should promote diversity; annual report should describe the nomination committee’s approach |
| Non-financial misconduct rules | FCA-regulated firms under the SMCR | From 1 September 2026, serious non-financial misconduct such as bullying and harassment is clearly within the Conduct Rules and fitness and propriety |
| Fit and proper and challenge | All firms | Boards must have the collective skills and independence to challenge executives; supervisors probe groupthink |
| Equality law | All employers | Fair, non-discriminatory recruitment and selection under the Equality Act 2010 |
The Listing Rules are in the UK Listing Rules. For dual-regulated firms, the PRA’s expectations on collective suitability also bear directly on board composition.
Why It Still Matters to Supervisors
The regulators’ interest in board composition was never only about fairness. A board where every director shares the same background, assumptions and sense of acceptable risk is less likely to spot a blind spot. That is a governance problem, and it links directly to what supervisors test under the SMCR: whether the chair creates real challenge, whether non-executives are independent in practice, and whether the board has the range of skills its business needs.
Supervisors increasingly ask boards to describe the range of experience their directors bring, not just their demographic make-up. A board that meets numerical targets but whose directors have all spent their careers in the same narrow part of financial services may still lack the perspective the governance rationale is aiming for. Our board skills matrix template helps nomination committees map this.
Culture and Non-Financial Misconduct
The FCA kept its non-financial misconduct work going after dropping the D&I rules. From 1 September 2026, its rules make clear that serious bullying, harassment and similar behaviour can breach the Conduct Rules and bear on whether someone is fit and proper. That matters for recruitment in two ways. Regulatory references must now reflect relevant findings, so firms will see more about a candidate’s conduct history. And boards are accountable for culture, so the chair and nomination committee need people who will lead an inclusive one. See the Conduct Rules explained and regulatory references.
What This Means for Board and SMF Searches
Build breadth into the brief, not the shortlist review
Boards that look at diversity late, by reviewing whether a finished shortlist happens to be diverse, get weaker results than boards that build it into the brief alongside the technical and regulatory criteria. In practice that means widening where candidates are found: beyond the existing board’s networks, into adjacent sectors, regulators, first-time non-executives with strong executive careers, and people with backgrounds the board doesn’t already have.
Plan succession early
An SMF9 or SMF14 appointment typically takes six to nine months including approval; see how long SMF appointments take. Boards that plan succession well ahead have room to run a broad search. Boards reacting to an unplanned departure tend to fill the seat from whoever is immediately available. Our SMF succession planning template sets out a timetable.
Chemistry and breadth are not in tension
Boards sometimes worry that widening the search will weaken fit. It doesn’t. A broader search simply means more candidates are tested for chemistry and capability, rather than assuming fit can only be found among familiar faces. See the chair-CEO chemistry problem.
Assess first-time non-executives fairly
Strong candidates without previous board roles are often screened out on the assumption that regulators won’t approve them. The regulators assess competence, not prior board titles. A first-time non-executive with relevant executive experience, good preparation and a clear Statement of Responsibilities is approvable. See non-executive directors at FCA-regulated firms.
Questions for the Nomination Committee
- What experience and perspectives does the board lack today, and how would we know if we had them?
- Where did the last three appointments come from, and did we look anywhere new?
- Are we screening out strong candidates because they haven’t held a board role before?
- If we are listed, where do we stand against the Listing Rules targets, and what will we say in the annual report?
- Does our assessment process test behaviour and challenge, or only CVs?
- Who on the board leads on culture, and how do we know it is inclusive?
The answers shape the brief. We work through them with the nomination committee chair before every board search, and record the reasoning so the board can explain its approach to investors and supervisors. Our guide to the nomination committee chair covers the committee’s wider role.
Scenario: A listed specialist insurer’s board has seven men and one woman, all from insurance. It needs a new audit committee chair and is below the Listing Rules gender target. Its first long-list comes from the existing directors’ contacts and looks much the same as the board. We widen the search to former audit partners, CFOs in adjacent regulated sectors and a former PRA supervisor. The board appoints a former bank finance director, its second woman director, who is approved as SMF11 without questions and brings experience the board lacked.
Where Firms Get This Wrong
The most common failure is treating one appointment as having solved the issue, then going back to the old sourcing habits for the next three vacancies. Lasting change comes from making breadth a standing part of every brief. The second is box-ticking: hitting a number without asking whether the board now has the range of experience to challenge well. Supervisors are interested in the second question more than the first.
Board Recruitment
Chairs, non-executives and committee chairs. Every board search is overseen by Adrian Lawrence FCA
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→ Chair and committee chairs → Multi-SMF team buildSMF9 explained →
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→ Governance review → Retained executive searchSMF13 explained →
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→ SMF10 and SMF11 → SMF14 explainedSMF12 explained →
Board Tools
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→ Board skills matrix template → Succession planning templateCollective suitability →
Every board search is overseen by Adrian Lawrence FCA
Frequently Asked Questions
Did the FCA drop its diversity rules?
Yes. In March 2025 the FCA and PRA said they would not take forward the proposed D&I rules for the time being.
Do the Listing Rules diversity targets still apply?
Yes, to UK-listed companies, on a comply or explain basis.
What are the Listing Rules targets?
At least 40% women on the board, at least one senior board position held by a woman, and at least one director from an ethnic minority background.
What changed on non-financial misconduct?
From 1 September 2026, FCA rules make clear that serious non-financial misconduct such as bullying and harassment is relevant to the Conduct Rules and fitness and propriety.
Can a first-time non-executive be approved as an SMF?
Yes, if they have relevant competence and are well prepared. The regulators assess competence, not prior board titles.
About the Author
Adrian Lawrence FCA is the founder of SMF Capital. He is a Chartered Accountant and Fellow of the ICAEW, holds a practising certificate in his own name, and is a former listed-company Finance Director with a BSc from Queen Mary College, University of London. He founded FD Capital in 2018 and has since built a network of five specialist recruitment practices. He oversees every SMF Capital search. View Adrian’s ICAEW profile.
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