UK: FCA publishes final rules on diversity-related disclosures by listed companies

The Financial Conduct Authority (FCA) has published a policy statement (PS22/3) setting out rule changes that will require premium and standard listed companies to make disclosures in relation to gender and ethnic diversity at board and executive management level for financial years starting on or after 1 April 2022.

Under the new Listing Rule requirements, premium and standard listed companies will have to include in their annual report a statement confirming whether they have met specified board diversity targets as at a reference date, chosen by the company, in the financial year. The targets are that:

• the board comprises at least 40% women;
• at least one of the Chair, CEO, CFO or Senior Independent Director is a woman; and
• at least one member of the board is from a minority ethnic background (that is one of the ethnic background categories recommended by the UK Office for National Statistics, other than a white ethnic group).

Companies not meeting these targets will be required to explain why they have not done so.

In addition, premium and standard listed companies will be required to include tabulated data in their annual report on the gender identity or sex (at the company's choice), and the ethnic diversity, of members of their board and executive management. Companies are also required to explain their approach to collecting the data and apply it consistently.  In changes from the FCA’s original proposals:

• the Listing Rules will allow companies some flexibility in how they collect and report on this data, reflecting potential privacy concerns raised during the consultation process; and
• there is a specific exemption from reporting where board members or management are situated overseas and local laws in that jurisdiction prevent collection or publication of such data.

The rules note that companies may also choose to include a brief summary of key policies, procedures and processes and any wider context that they consider contribute to improving board or executive management diversity, any mitigating factors, any foreseen risks in relation to meeting the targets and any plans to improve board diversity.

The final rules also expand the disclosures required in the corporate governance statement in relation to a company’s diversity policy under DTR 7.2.8AR (see our corporate update 2016/23). The description should cover any aspects of the policy concerning ethnicity, sexual orientation, disability and socio-economic background (in addition to age, gender and educational and professional background, mentioned previously). Companies will also need to disclose how their diversity policy is applied to their key board committees.

Whilst the new disclosure requirements apply for financial years starting on or after 1 April 2022, the FCA is encouraging companies to include these disclosures in their annual report on a voluntary basis ahead of this date. The FCA is of the view that, since companies can choose their own reference date against which to make these disclosures, companies could put in place the necessary processes to collect and report on this data sooner, for example for financial years starting on or after 1 January 2022.

The rules will be reviewed in three years' time, at which point the FCA will consider whether to revise the nature or level of the targets and whether to consider targets on other aspects of diversity.

The policy statement also notes that the FCA is currently considering the responses to its discussion paper on ‘Diversity and inclusion in the financial sector’ together with the responses to its recent diversity and inclusion pilot data survey and cost benefit analysis survey. The FCA expect to publish a consultation paper in 2022.