The Financial Conduct Authority (FCA) has recently published a Policy Statement further to its consultation in July 2021 about Board diversity targets at firms subject to the Listing Rules (LR) and the Disclosure Guidance and Transparency Rules (DTR).
summarising the Policy Statement. The Statement confirms that the FCA will be amending the LR and the DTR to require listed firms to publish information on the extent to which they meet various Board and Senior Management diversity targets, including a requirement for Boards to comprise of at least 40% women/people identifying as women. In addition, firms are encouraged to report voluntarily on a number of other metrics such as their policies and procedures in respect of their wider diversity strategy and the risks and mitigating factors that stand in their way when it comes to diversity.
The Policy Statement will not come as a surprise to financial services firms, both because it largely confirms the proposals on which the FCA consulted on and because of the FCA’s wider agenda around diversity and inclusion. It has previously confirmed that diversity and inclusion are central to its regulatory strategy, given that, in its view, they underpin healthy cultures, helping firms to avoid “groupthink” and encouraging environments where it is easier for employees to raise concerns. Having previously driven this agenda at an individual level via the Senior Managers and Certification Regime (SMCR) in terms of increased focus on non-financial misconduct, such as harassment and discrimination, it is now encouraging greater transparency at firm level, but those senior executives in charge of firms’ diversity agendas may well find that they face sanctions under SMCR if they fail to drive the agenda in a competent manner.
As with gender pay gap reporting and other provisions under the Listing Rules and the Corporate Governance Code, firms are given the opportunity to put some context around the statistics they publish – partly through the “comply and explain” approach, but also through a broader call for voluntary transparency around their longer-term diversity objectives, and how they plan to achieve them in the face of various obstacles and risk factors. It will be interesting to see whether and to what extent firms will cite the impact of the pandemic and various hybrid working arrangements as part of this narrative. Firms whose diversity quotas exceed these targets may use these new requirements as an opportunity to tell a positive story in relation to diversity, in a bid to attract and retain high calibre candidates and employees in the context of the Great Resignation.
Firms are also reminded that any changes they make to their diversity and inclusion profile must be in accordance with existing legislation, and in particular in relation to positive action (which is permitted) and positive discrimination (which is not). This clearly presents some challenges for firms and if you would like to understand more about what the law allows, support with meeting the above reporting requirements or with appropriate employee population monitoring techniques, please contact a member of the Employment team.