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

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21 Apr, 2022

The Financial Conduct Authority (FCA) has published its final policy decision (Policy Statement (PS) 22/3) on measures to improve transparency for investors on the diversity of listed company boards and their executive management teams.

The FCA is introducing new Listing Rules (LR 9.8.6R(9) and LR 14.3.33R(1)) to require, as an ongoing obligation, in scope companies to include a statement in their annual financial report setting out whether the listed company has met specific board diversity targets on a 'comply or explain' basis, as at a chosen reference date within their accounting period and, if they have not met the targets, why not.

The targets are:

  • At least 40% of the board are women.
  • At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Senior Independent Director (SID) or Chief Financial Officer (CFO)) is a woman.
  • At least one member of the board is from a minority ethnic background.

Issuers will also have to set out in their statement:

  • the reference date used, and where this is different from the reference date used in respect of the previous accounting period, an explanation of why, and
  • any changes to the board that have occurred between the reference date and the date on which the annual financial report is approved that have affected the company’s ability to meet one or more of the targets.

Alongside the annual narrative comply or explain disclosure, there is also a new requirement (in LR 9.8.6R (10) and LR 14.3.33R (2)) for in scope companies to publish numerical data on the sex or gender identity and ethnic diversity of their board, senior board positions (Chair, CEO, SID and CFO) and executive management in a standardised table format.  Some flexibility is allowed in the reporting on sex or gender identity, in order for companies to reflect their approach to data collection.

For the purposes of reporting ethnic diversity, the following categories are used to define those from a minority ethnic background:

  • Asian/Asian British
  • Black/African/Caribbean/Black British
  • Mixed/Multiple Ethnic Groups
  • Other ethnic group, including Arab

Issuers are also required to explain their approach to collecting the data.  New guidance in LR 9.8.6IG and LR 14.3.36G set out the FCA's expectations of what the explanation should cover.  The FCA has also included guidance in LR 9.8.6IG and LR 14.3.36G of additional disclosures that in scope companies might wish to make to provide further context.  

The above measures apply to 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, including closed-ended investment funds and sovereign controlled companies, but excluding open-ended investment companies, and ‘shell companies’ as defined in LR5.6.5AR.  The rules also do not apply to issuers of listed debt and debt-like securities, securitised derivatives or miscellaneous securities.

The FCA is also changing the Disclosure Guidance and Transparency Rules (DTR) - specifically DTR 7.2.8AR - to expand existing reporting requirements to cover the diversity policies of key board committees and to indicate that reporting on board and board committee diversity policies could consider wider diversity characteristics.

These new requirements will apply to financial years starting on or after 1 April 2022. However, companies whose financial years began before then (from 1 January 2022 onwards) are encouraged to consider reporting on the targets and making numerical disclosures in relation to their current accounting period on a voluntary basis.

A press release and the full policy statement are available on the FCA website.

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