Finance

FCA looks to force companies to explain board-level diversity

The City watchdog has launched a consultation on changes to its listing rules which would require companies to publish “comply or explain” statements on the level of diversity on their boards.

The move comes as the Financial Conduct Authority looks to boost female and ethnic minority representation at senior level across financial services.

“There is 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,” said Clare Cole, director of market oversight at the FCA, in a 28 July statement.

“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.”

The regulator is also looking to require firms to annually disclose data on the make-up of their board and most senior level of executive management in terms of gender and ethnicity, as well as information about firms’ diversity policies.

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The targets set out by the watchdog for the “comply or explain” statements are: at least 40% of a board should be women; at least one senior board position, such as chair, CEO, CFO or senior independent director, should be a woman; and at least one member of the board should be from a non-white ethnic minority background.

The FCA said it was “not setting ‘quotas'”, as the targets are not mandatory, but they would provide “a positive benchmark for issuers to report against”.

Earlier this month, the FCA, the Bank of England and the Prudential Regulation Authority said firms in the City have not done enough to increase diversity and narrow the gender pay gap.

On 7 July, it published a set of policy recommendations, including a requirement for firms to link pay to metrics on diversity and inclusion.

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In March, the regulator said it would consider whether the gender diversity appointments could be integrated into its Senior Managers and Certification Regime and explore whether to make similar requirements as part of premium listing rules.

Speaking virtually at the fourth annual review of the Women in Finance Charter, chief executive Nikhil Rathi said: “There are supervisory tools we can draw on. For example, I want to consider whether the diversity of management teams – and the inclusivity of the management culture they create – could be part of our consideration of senior manager applications.”

The consultation will close on 22 October 2021 and the regulator will seek to make relevant rules by “late 2021”, it said in its statement.

To contact the author of this story with feedback or news, email Bérengère Sim

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