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Corporate governance in financial services
Corporate governance expectations in financial services have never been higher. Our findings show a sector with real strengths and real gaps.
Corporate governance overview
Financial services firms in the FTSE 350 face a difficult operating environment. Slow growth, geopolitical uncertainty and persistent cost pressures compete for board attention alongside longer-term strategic priorities. Effective corporate governance needs to reflect the associated complexity, with informed challenge, the right skills and diversity of thought to drive long-term, sustainable shareholder value.
The sector also carries a regulatory burden that sets it apart from the rest of the FTSE 350. The Senior Managers and Certification Regime (SM&CR) places personal accountability at the heart of firm governance. Meanwhile, Consumer Duty puts fair value and good consumer outcomes at the centre of all business activity. Prudential frameworks such as Basel 3.1, Solvency UK and the Alternative Investment Fund Managers Directive (AIFMD) would not be possible without robust board oversight.
Good corporate governance, however, extends beyond regulatory compliance. Cyber security and good use of data reflect both operational and strategic imperatives, and are key areas where boards need to upskill for effective challenge. Similarly, macroeconomic conditions, geopolitical developments and ESG require boards to think beyond the immediate horizon. Firms with the strongest corporate governance will be best placed to navigate these risks and steer toward sustainable growth.
Building on our Corporate Governance Review 2025, we examine what drives board effectiveness and activity across banking, insurance and investment management. We track the measures and metrics that are strong indicators for good governance outcomes. The sector leads the way in some areas, with others offering scope for growth against FTSE 350 practices.
"Governance shouldn't be viewed as a compliance exercise; it's a catalyst for resilience, ethical leadership, and bold decision-making."
Claire Fargeot
Managing Director, Board and Governance Advisory
The Financial Services Report Card
Green
Ahead of the curve by...
84% of Financial services firms claim full Code compliance (2024: 74%)
18% recognise board succession planning as a strategic priority (2024: 9%)
Amber
Closing the gap by…
97% of Financial services firms have independent boards (2024: 100%)
c.50% average board gender diversity for Financial services firms
Red
Behind the curve by…
Financial services are not meeting the mark on board evaluation disclosures
Culture and values disclosures still require some improvement in places
"The government's ambitious growth agenda relies on strong investment into UK infrastructure, and that's changing the risk profile of the investment management sector. Firms are moving into private assets, which are inherently higher risk and new territory for many. That creates real concerns over pro-cyclical effects, fire sale scenarios, market instability. Boards are being asked to oversee things they've never overseen before."
David Morrey
Partner, Head of Investment Management
Key Findings
Board independence
Board independence is strong across the sector, with insurance and investment management firms reporting fully independent boards at 100%. Banking in 2025, lagged behind at 90%, and behind the FTSE 350 average of 97%. Similarly, no firms in the sector combine the CEO and chair roles, against 3% across the FTSE 350.
Chair tenure
On chair tenure, financial services firms outperform the wider market. None of the three sub-sectors reported a chair tenure exceeding nine years, compared to 12% of FTSE 350 companies. However, 50% of investment management chairs had been in position for 7-9 years, highlighting the importance of effective succession planning.
“Financial services firms are progressing along the AI maturity curve at different speeds. Early gains focus on personal productivity from employee adoption of AI. As AI is embedded into business workflows, it begins to reshape how work gets done. At its most advanced, AI becomes transformative as it is integrated into business models, moving beyond efficiency and reshaping how value is created. However, the challenge is not simply adoption, but ensuring AI and agents are treated as a core risk and governance discipline, rather than being viewed through a technology or legal lens.
Boards have a critical role in setting the tone, defining risk appetite, and providing oversight and challenge of AI strategy. They need to establish clear accountability, focusing on outcomes over process, and asking the right questions as use cases scale. This demands a thoughtful blend of skills and perspectives to enable informed, proportionate oversight. If done well, strategic AI and agent adoption can not only accelerate business performance, but also transform risk oversight, making it more proactive, predictive, and continuous and fundamentally reshape how governance operates.”
Jon Sperrin
Director, Insurance
Board size
Board size is broadly consistent across the sector and in line with the FTSE 350. Banking and insurance boards are slightly larger at ten and eleven respectively, while investment management matches the FTSE 350 average of nine.
Diversity policy disclosures
Diversity policy disclosure is one area for improvement. While 100% of investment management firms reference a diversity policy, banking sits at 80% and insurance at 70%, both below the FTSE 350 benchmark of 98%.
Gender diversity
Gender diversity is a clear strength. Financial services boards firms carry more female non-executive directors (NEDs) than the FTSE 350 average of 3.5. Investment management leads the way with seven, banking at five and insurance at four. Ethnic diversity also compares well in banking, with an average of three ethnically diverse NEDs against the FTSE 350 average of 1.5. Investment management lags, averaging just one.
Average female NEDs on board vs FTSE 350
Board meetings
Financial services boards meet more frequently than the FTSE 350 average of eight times a year. Investment management leads at ten meetings, banking follows at nine and insurance matches the market average at eight. The higher cadence in banking and investment management reflects the more intensive corporate governance requirements of those sub-sectors.
Director re-election
Annual re-election of directors is standard practice in banking, with 100% of firms subject to this requirement. Investment management sits at 90% and insurance at 80%, both below the FTSE 350 average of 96%. Insurance in particular has scope to align more closely with wider market practice here.
Board evaluation
Board evaluation disclosure is mixed across the sector. While insurance leads at 80% strong, banking and investment management sit below the FTSE 350 average of 65%, with 60% and 50% respectively. Stronger disclosure in this area would better demonstrate how boards are acting on evaluation findings.
Internal controls
Internal controls disclosure presents a more complex picture. Banking and insurance both score 50% strong, in line with the FTSE 350 average, while investment management lags at 20%. When it comes to disclosing specific control weaknesses, investment managers lead the way at 100% with insurance close behind at 90%, well above the FTSE 350 average of 82%. However, banking disclosures sit at 60%, with further work needed to improve transparency over controls oversight.
Internal controls - % disclosed as strong
The regulatory simplification agenda aims to reduce the burden of compliance and promote growth – but it is still regulatory change. Boards need appropriate oversight of their risk management frameworks to show that these change programmes are on target, and that they add value to existing internal control frameworks.”
Kantilal Pithia
Partner, Banking
Corporate Governance Review 2025
Analysis of the FTSE 350's annual reports highlights the key themes in governance best practice, as well as insight on future trends, and where you need to act.
Spotlight issues
Culture: a corporate governance cornerstone
Culture reporting is extensive across financial services, but the quality of findings varies. Insurance leads the sector on culture and values disclosures, with 100% of firms scoring strong on their reports’ discussion of these topics, well above the FTSE 350 average of 65%. Banking sits at 70%, while investment management has clear room for growth at 40%. Chair engagement with culture follows a similar pattern, with insurance at 100%, investment management at 80% and banking at 70%, against a FTSE 350 average of 89%.
Firms across all three sub-sectors use a range of culture metrics, but reporting tends to rely on criteria focused on employee experience, such as surveys, whistleblowing programmes and diversity statistics. Tools such as culture audits, customer satisfaction data and net promoter scores could provide a richer picture.
Culture and values reporting - % of reports rated strong
"There are still weaknesses in how insurers understand culture. Too many boards focus on metrics such as whistleblowing data and staff turnover figures. But culture is not just an HR matter. This leads to firms underestimating the impact of their culture on the overall delivery of customer outcomes and the inability to demonstrate that their culture is fully embedded across their organisation. This is key in demonstrating compliance with the FCA and PRA expectations.”
Blandine Arzur-Kean
Managing Director, Insurance
Diverse board support diversity of thought
While gender and ethnic representation compare well with the FTSE 350, broader characteristics remain significantly underreported. More than 60% of firms across the market do not disclose data beyond these two dimensions.
Banks don’t report on disability, religious beliefs or sexual orientation. Investment management firms don’t disclose on age, race, religion or cognitive diversity. Insurance performs marginally better, but coverage remains thin. Boards that cannot report on broader diversity may struggle to achieve effective challenge from diversity of thought.
Diversity characteristics disclosed - by sub-sector
| Characteristic | Banking | Insurance | Investment management |
|---|---|---|---|
|
Gender
|
yes
|
yes
|
yes
|
|
Ethnicity
|
yes
|
yes
|
no
|
|
Age
|
yes
|
yes
|
no
|
|
Disability
|
no
|
yes
|
no
|
|
Religion/beliefs
|
no
|
yes
|
no
|
|
Sexual orientation
|
no
|
yes
|
no
|
|
Cognitive diversity
|
no
|
no
|
no
|
Board evaluation: prioritising cultural alignment and succession
Board evaluations are standard practice under the UK Corporate Governance Code, but the quality of follow-through varies. Strategic focus and future planning is the most common area for improvement, cited by 56% of firms. Succession planning also features prominently, with 40% of boards identifying it as an area for development at board level and 25% flagging the senior management pipeline. Risk management and controls oversight appears in 18% of evaluations, alongside board skills, culture and experience at 22%.
The findings suggest evaluations are identifying the right issues, but embedding meaningful change remains a challenge. Culture-related themes appear across multiple categories, from definition and alignment through to monitoring and employee engagement, pointing to a gap between boards recognising cultural priorities and acting on them consistently.
|
56%
|
Strategic focus and future planning
|
|
40%
|
Succession planning - board level
|
|
25%
|
Succession planning - senior management pipeline
|
|
22%
|
Board skills, culture and experience
|
|
18%
|
Risk management and controls oversight
|
Board skills in cyber and data
Just 5% of banking boards have cyber or data skills, falling to 3% in investment management and none in insurance. This is despite all firms identifying cyber as a principal risk. On this measure, financial services lags behind the FTSE 350, where cyber and data expertise on boards sits at 7%.
The gap is particularly notable given operational resilience expectations for the financial sector, in addition to broader obligations under the General Data Protection Regulation (GDPR) and the Digital Operational Resilience Act (DORA). Boards without relevant expertise may find it harder to provide meaningful oversight and challenge, and to capture the opportunities of AI while managing its risks.
Findings by sub-sector
While the sector shows real corporate governance strengths, performance is not uniform across banking, insurance and investment management. We take a closer look at the key differences and where gaps remain.
Banking
- Leads: strongest skillsets around emerging technology in the financial services sector, with the highest meeting cadence, and strong director accountability.
- Watch: cultural measures are still developing, and board independence eased to 90% in 2025.
Insurance
- Leads: the strongest culture reporting in the market — every 2025 report rated strong — alongside fully independent boards.
- Watch: gender lags peers at 44% female NEDs, and no insurer reported cyber or data expertise on its board in 2025.
Investment management
- Leads: gender close to parity at 51% female NEDs, fully independent boards, and deep accounting and finance experience.
- Watch: small boards stretch capacity, ethnic representation is the thinnest in FS, and its culture and skills metrics swing sharply year to year.
"Some form of allocation to private assets is increasingly seen as a necessary element of a diverse retail portfolio, and the FCA could view customers not taking sufficient risk as a poor outcome. But doing this at scale relies on emerging retail investment products and technologies, such as tokenisation of assets, which are not yet widely available. The sector needs strong Boards who can make the tough decisions to drive change and meet client demand.”
Jonathan Charles
Partner, Investment Management
Final thoughts
Financial services boards are operating from a position of relative strength. The sector's corporate governance infrastructure, built over a decade of intensive regulatory reform, gives it a foundation that much of the FTSE 350 is only now being asked to develop. But strength in structure does not guarantee strength in oversight nor direction.
The firms best placed to grow are those that treat corporate governance as a strategic asset rather than a compliance obligation. That means investing in the right skills, embedding effective succession planning and improving reporting metrics to support growth and further strengthen resilience and oversight.
Download our recent Corporate Governance Review report.
If you'd like to discuss any of these areas please contact Claire Fargeot.
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