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FCA consults on proposals to boost disclosure of diversity on listed company boards and executive committees

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30 Jul 2021

The Financial Conduct Authority (FCA) has published a consultation on proposals to improve transparency for investors on the diversity of listed company boards and their executive management teams.

The FCA is consulting on changes to its Listing Rules (LR) to require, as an ongoing listing obligation, UK and overseas issuers with equity shares, or certificates representing equity shares, admitted to the premium or standard segment of the FCA's Official List, to publish annually in their annual financial report: 

  • a ‘comply or explain statement’ on whether they have achieved certain targets for gender and ethnic minority representation on their boards; and 
  • data on the composition of the board and most senior level of executive management in terms of gender and ethnicity.

The FCA is proposing to exclude open-ended investment companies, and ‘shell companies’ as defined in LR5.6.5AR from the companies in scope of the proposal.  It is also not proposing to apply the proposals to issuers of debt securities, securitised derivatives or miscellaneous securities at this stage.  The FCA propose to change LR 9.8.6R and LR 14.3 by adding in a new requirement (LR 9.8.6R(9) and LR 14.3.27R(1)) that in scope companies include a statement in their annual financial report setting out whether the listed company has met the following targets on board diversity, as at a specific date within the accounting period selected by the listed company (referred to as the ‘reference date’): 

  • At least 40% of the board are women (including those self-identifying as women).
  • At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Senior Independent Director (SID) or Chief Financial Officer (CFO)) is held by a woman (including those self-identifying as a woman).
  • At least one member of the board is from a non-White ethnic minority background (as referenced in categories recommended by the Office for National Statistics (ONS)).

In cases where in scope companies have not met all of the targets, the FCA propose to require them also to indicate the targets they have not met and to explain the reasons for not meeting the target(s).  New listing Rules 9.8.6R(10) and LR 14.3.27R(2) would be introduced to require publication of the numerical data on gender and ethnic diversity of the board and most senior level of executive management.

The FCA is also proposing changes to the Disclosure Guidance and Transparency Rules (DTR) - specifically DTR 7.2.8AR - to require companies in scope to ensure that any existing disclosure on diversity policies addresses key board committees and also considers broader aspects of diversity such as ethnicity, sexual orientation, disability and lower socio-economic background.  Under the proposals DTR 7.2.8AR would be amended to:

a. indicate that this disclosure should also include how any diversity policies apply to the key committees of the board, specifically the committees on remuneration, audit and nominations, and
b. clarify that the aspects of diversity to which the diversity policy may relate could include, for example, ethnicity, sexual orientation, disability and socio-economic background (in addition to the aspects of diversity already referred to in the rule)

The FCA also propose to add separate guidance, at DTR 7.2.8CG, which would encourage the publishing of fuller data on the diversity of their board and relevant board committees, where currently there is relatively little information.

It is proposed that the new Listing Rule requirements will apply to accounting periods beginning on or after 1 January 2022.  The FCA encourages companies to consider making disclosures on a voluntary basis in annual financial reports published before then.  The FCA encourages issuers to consider their disclosures under DTR 7.2.8AR in light of its proposals as soon as possible. However, in order to provide them with more opportunity to address these matters, it proposes that the changes to DTR 7.2.8AR and the new guidance would come into force at the same time and for the same accounting period as its new LR requirements.

Comments are requested by 20 October 2021.

A press release and consultation are available on the FCA website.

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