FCA diversity targets 'meaningless' without proper data capture, law firm warns

Subject to feedback and board approval, the regulator aims to make the relevant rules by late 2021 for reporting periods beginning January 1, 2022.

Comply or explain

If the proposals go ahead companies would be encouraged to consider making disclosures on a voluntary basis in annual financial reports published before the requirements would take effect.

According to CMS, "the purpose of the proposed changes is to enhance market integrity by encouraging increased transparency and providing better data for companies and investors to assess companies’ progress in obtaining a diverse board."

The recent Parker Review into boardroom diversity acknowledged there had been "some improvement in representation of ethnic minorities on the UK’s top boards", but said there was still some way to go in order to achieve the “one by 2021” target.

Following on from the FCA’s recent joint Discussion Paper with the PRA: “Diversity and inclusion in the financial sector – working together to drive change”, on July 28, the FCA announced a number of proposals to boost board diversity.

Companies should also be able to explain any mitigating factors or circumstances that make achieving diversity on its board more challenging.

The CMS note stated: "The FCA considers that ‘comply or explain’ targets and data disclosure will prompt issuers to consider, and investors to scrutinise, more closely and therefore hold to account companies on how they encourage more diversity of gender and ethnicity on their boards and senior management committees, thereby improving opportunities for these groups.

"Explaining non-compliance will promote debate and transparency, and puts a marker in the sand allowing investors to monitor progress and hold issuers to account.

"It is also hoped that the potential reputational impact of explaining rather than complying will be such that it will incentivise organisations to comply in the medium to longer term."