FCA consults on proposals to boost diversity

It’s also consulting on changes to its listing rules to require listed firms to publish this information annually. 

A “comply or explain statement” on whether firms have achieved certain proposed targets on representation on their boards will be part of the same annual disclosure obligation. These targets include making sure at least 40% of the board are women, with at least one woman holding a senior board position. In addition to this, at least one member of the board should be from a non-white ethnic minority background.

The FCA is also proposing changes to its disclosure and transparency rules, requiring firms to ensure any existing diversity policies address key board committees and broader aspects of diversity. These considerations could include ethnicity, sexual orientation, disability, lower socio-economic background and other diversity characteristics. 

The diversity targets are not mandatory for companies to meet, so the regulator is not setting quotas but providing a positive benchmark for issuers to report against. The proposals would apply to UK and overseas businesses with equity shares in either the premium or standard listing segments of the FCA’s official list, while the disclosure and transparency changes apply to companies with securities traded on UK regulated markets. 

These measures are aimed at helping ensure reporting beyond the largest listed companies and ensure more consistency. 

Commenting on the proposals, the FCA’s director of market oversight Clare Cole said: “There’s a current lack of standardised and mandatory transparency about diversity on listed company boards, particularly outside the FTSE 350 who do not provide data to the voluntary initiatives in this area. But interest from investors is growing and companies are increasingly focusing on this topic due to ESG investing, as well as wider social and public policy concerns.

“Our proposals are intended to increase transparency by establishing better, comparable information on the diversity of companies’ boards and executive committees. This will provide better data for companies and investors to assess progress in these areas and make investment decisions, reduce investor search costs, and inform shareholder engagement, enhancing market integrity.  

“Over time, we expect enhanced transparency may strengthen incentives for companies towards greater diversity on their boards and encourage a more strategic approach to diversity in their pipeline of talent.” 

The changes follow the FCA’s recent discussion paper published earlier in July, exploring how to promote diversity and inclusion across the financial services sector as a whole, and will be an ongoing focus beyond the proposals it sets out here. The regulator is consulting for 12 weeks on these proposals, with a closing date of 22 October, with it looking to make relevant rules by late 2021. 

This comes after the governor of Bank of England Andrew Bailey admitted shortcomings in promoting diversity following a review of the institution. Writing in The Guardian, he added: “As a first step, we have made diversity and inclusion one of our core strategic priorities for the coming years. 

“This means increased focus, effort and energy from me, my senior team and bank colleagues more broadly. We have also agreed new and stretching targets to increase representation - including at our most senior levels.”