The Financial Conduct Authority will move ahead with rules to force listed companies to disclose diversity information.
In a policy statement published today (20 April) the regulator said it has received wide support for its proposals.
It has maintained requirements to disclose against targets for the representation of women and minority ethnic groups on a comply or explain basis.
The ‘comply or explain statement’ will see listed companies target board representation of women at a minimum of 40%.
The regulator has also confirmed a rule to make accompanying numerical disclosures in a table format on the diversity of a company’s board and executive management level.
However the FCA said it received concern about the proposed basis for reporting on women’s representation.
This includes privacy concerns regarding the interaction between its proposed disclosure requirements and similar reporting under the Companies Act.
The FCA said its finalised rules give companies flexibility to decide on the most appropriate approach to collecting data for the purposes of reporting against the target on women’s representation and for the related numerical disclosures.
Companies will determine themselves how best to collect and report data but will be required to explain the approach they have taken and be expected to take a consistent approach.
Firms will also be required to ensure any existing disclosure on diversity policies addresses key board committees and other broader aspects of diversity.
This could include considerations of ethnicity, sexual orientation, disability, lower socio-economic background and other diversity characteristics.
The final rules will apply to accounting periods starting on or after 1 April 2022 meaning that new disclosures will start to appear in annual financial reports published from around Q2 2023 onwards.
However, the FCA encourages companies whose financial years began from 1 January 2022 to report on the targets sooner.
Firms can make numerical disclosures in relation to their current accounting period on a voluntary basis.
Reacting to the proposals a spokesperson from the Chartered Insurance Institute (CII) says: “Whilst we welcome the FCA’s policy statement this morning, we feel that what is still needed involves dedicated constructive planning and affirmative action to get to where we collectively feel we should be heading for the benefit of all.
“The CII actively measures the diversity of its board and executive committee with identified actions and has long maintained that the key to innovation and success is found in properly accessing the diversity of ideas found within the full breadth of society.
“It is important to accept and understand that when our talent pool is limited, we are in fact limiting ourselves as an organisation, and therefore limiting the benefits we can bring to those we serve.
“Addressing D&I should be one of the highest priorities within the profession if we are to dismantle any unjust barriers that prevent people from accessing careers in insurance.
“Senior leaders need to understand where the barriers are that hinder the progress of talented people from all backgrounds from moving up the career ladder.”
Delphine Currie partner Reed Smith adds: “Whilst some will be disappointed that the FCA has not gone further by mandating minimum levels of diverse representatives, the ‘comply or explain’ regime is familiar to listed companies in the UK and follows the model adopted for corporate governance more generally.
“Companies which fail to comply with the UK corporate governance regime often fail to attract investment from institutional funds, and it is expected that failure to comply with the FCA’s new diversity requirements will have similar consequences.
“The new rules will be challenging for some companies. Whilst many listed companies have appointed directors from diverse backgrounds in recent years, there are plenty which haven’t or have made only token appointments. This is likely to lead to a fair bit of competition for diverse, non-executive directors.”
