FCA Asks UK Firms to Disclose Diversity Records in Annual Reports

In a policy shift, the United Kingdom’s Financial Conduct Authority (FCA) now requires listed companies in the country to disclose information on the representation of women and ethnic minorities on their boards and executive management.

The FCA said its new Listing Rules will make it easier for investors to see the diversity of listed companies’ senior leadership teams.

It added that the rules reflect its focus on speeding up the pace of change around diversity and inclusion in financial services.

With this adjustment to the ‘Diversity and Inclusion on Company Boards and Executive Management Policy Statement’, companies must now state in their annual financial reports whether they have met specific board diversity targets.

The rule is to apply to financial accounting periods starting on or after April 1, 2022, the FCA said.

The updated rules, which the FCA noted, will review in three years’ time to check for their efficacy and appropriateness and demand that businesses divulge their key Board Committees’ records.

“The FCA’s approach sets positive diversity targets for listed companies. If they cannot meet them, they need to explain why not. This approach allows flexibility for smaller firms or those based overseas,” FCA said in a press statement on its website.

“The rules also allow companies to decide how best to collect data from employees to show they are meeting the targets,” the watchdog added.

Which Companies Are to Follow the Rules?

According to the FCA, the companies to follow these rules are “UK and overseas companies with equity shares, or equity shares represented by certificates (including global depositary receipts), admitted to either the premium or standard listing segments of the FCA’s Official List in the UK or considering admission to such listings.”

While open-ended investment companies and ‘shell companies’ are exempted from the rules, closed-ended investment funds and sovereign-controlled companies are to follow the rules.

Moreover, the FCA explained: “We are not applying the rules to issuers of listed debt and debt-like securities, securitised derivatives or miscellaneous securities.

“Our corporate governance rules apply to certain UK issuers with securities admitted to UK regulated markets and, through the Listing Rules, to certain overseas listed companies subject to existing exemptions for small and medium companies.”

FCA’s Diversity Targets

The FCA’s diversity targets require that at least 40% of a listed company’s board members be women and at least one senior board position held by a woman.

Also, at least one member of a listed company’s board should be from an ethnic minority background excluding white ethnic groups, FCA said, adding that its categorization is as set out by the UK Office for National Statistics.

The FCA's new move on diversity is coming some weeks after it appointed three senior directors to new various departments in the agency and launched a three-year plan to "improve outcomes for consumers and in markets throughout the UK."