FCA amends diversity rule to include those self-identifying as women

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FCA amends diversity rule to include those self-identifying as women

The Financial Conduct Authority has amended the terminology in its diversity rules to allow listed companies to include those self-identifying as women in its reporting.

In its policy statement published today (April 20) titled 'Diversity and inclusion on company boards and executive management', the regulator said it received 540 responses to its consultation paper.

Of these responses, 439 focused specifically on the FCA’s proposal to include those self-identifying as women as part of the targets on the representation of women and related data disclosures.

Some responses highlighted risks to data quality if data collected under the requirements differed from that collected for the purposes of reporting under the Companies Act 2006 - which requires reporting on the sex of directors and senior managers - and that these differences could lead to privacy risks.

The FCA said: “In light of the feedback on our proposed basis for reporting on women’s representation, including the privacy concerns raised by respondents due to the interaction between our proposed disclosures and existing requirements for disclosure under the Companies Act, we have decided to adopt a framework that gives companies more flexibility in how they report. 

“We have removed the guidance on self identification which accompanied the targets and data disclosure table and have given companies more flexibility to determine how best to collect data from employees, provided their approach is explained and applied consistently.”

In particular, for the numerical disclosures, the FCA said companies can report either on the basis of sex or gender identity. 

Sarah Pritchard, executive director of markets at the FCA, said: “As investors pay increasing attention to diversity at the top of the companies they invest in, enhancing transparency at board and executive management level will help hold companies to account and drive further progress."

The City watchdog first announced the consultation paper last July and proposed changes to its listing rules as a way of improving transparency on the diversity of listed company boards and their executive management teams. 

"We have amended the language used in the target by removing the reference to “non-White” and instead referring to individuals from a ‘minority ethnic background’"  FCA

The regulator consulted on rules to require companies to disclose annually on a comply or explain basis whether they meet specific board diversity targets and to publish diversity data on their boards and executive management.

The FCA will not be setting ‘quotas’ for companies to meet as the listing rule diversity targets are not mandatory. Instead it will provide a positive benchmark for issuers to report against. 

The regulator said today it will be moving forward with the proposals.

The benchmarks are for at least 40 per cent of the board to be women, at least one of the senior board positions (chairperson, chief executive officer, chief financial officer or senior independent director) to be a woman and at least one member of the board to be from an ethnic minority background.

It is also making changes to its disclosure and transparency rules to require companies to include key board committees and consider broader aspects of diversity. 

As part of the consultation, the FCA also received some specific feedback to its use of the phrase ‘non-white ethic minority background’, with some arguing it could be confusing and cause offence to some. 

“Based on feedback on the use of ‘non-White’ in our draft rules we have amended the language used in the target by removing the reference to “non-White” and instead referring to individuals from a ‘minority ethnic background’, which is defined to include those from an ethnic group other than a white ethnic group, as specified in categories recommended by the Office for National Statistics (ONS),” it said.

The new rules will apply to UK and overseas companies 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, such as the main market of the London Stock Exchange.

It will apply to listed companies for financial accounting periods starting from April 1, 2022. 

The FCA said it is also giving greater flexibility to issuers who have members of their board or executive management situated overseas in relation to numerical disclosures. 

“In those cases, where local law prevents the collection and / or publication of relevant data, a company may instead explain the extent to which it is unable to make the numerical disclosures and complete the tables,” it said.

The regulator plans to review the rules in three years’ time to make sure they are working and to check if the diversity targets are still appropriate. 

sonia.rach@ft.com

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