Condition monitoring (CM) of industrial processes is essential for reducing downtime and increasing productivity through accurate Condition-Based Maintenance (CBM) scheduling. Indeed, advanced intelligent learning systems for Fault Diagnosis (FD) make it possible to effectively isolate and identify the origins of faults. Proven smart industrial infrastructure technology enables FD to be a fully decentralized distributed computing task. To this end, such distribution among different regions/institutions, often subject to so-called data islanding, is limited to privacy, security risks, and industry competition due to the limitation of legal regulations or conflicts of interest. Therefore, Federated Learning (FL) is considered an efficient process of separating data from multiple participants to collaboratively train an intelligent and reliable FD model. As no comprehensive study has been introduced on this subject to date, as far as we know, such a review-based study is urgently needed. Within this scope, our work is devoted to reviewing recent advances in FL applications for process diagnostics, while FD methods, challenges, and future prospects are given special attention.