FCA sets board, executive diversity targets

The Financial Conduct Authority (FCA) is adopting final rules that will set board diversity targets for public companies in the United Kingdom.

Under the FCA’s final proposals, listed firms will have to comply with several targets. Among them, at least 40% of the board must be female, at least one senior position – such as chairperson, CEO, CFO – must be filled by a woman and at least one director must be from an ethnic minority group. If issuers are not meeting those targets, they must explain why.

The regulator said that its rules are designed to boost the disclosure of diversity, with the ultimate objective of driving improvements in diversity.

“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,” said Sarah Pritchard, executive director of markets at the FCA, in a release.

The FCA said its “comply or explain” approach to diversity targets allows flexibility for firms, and that its rules also allow companies to decide how to collect data to show they are meeting the targets.

“Setting targets on a ‘comply or explain’ basis for the representation of women and people from a minority ethnic background is designed to be a positive reporting benchmark to encourage progress,” the regulator said in a policy statement outlining the new requirements.

“However, it serves as a starting point to encourage scrutiny and consideration of diversity and inclusion more broadly, both at senior levels of listed companies and throughout their businesses,” it added.

The new rules will apply for financial reporting periods starting April 1.

The FCA said that it will review the rules in three years, “to make sure they are working and to check if the diversity targets are still appropriate.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.