FCA finalises rules on board diversity for listed companies

April 22, 2022

Firms to disclose evidence of meeting diversity targets or explain the failure to comply.

UK regulator the Financial Conduct Authority (FCA) has finalised rules that will mandate regulated, listed firms to publish diversity disclosures in their annual reports, starting from the financial accounts period beginning 1 April 2022.

According to the watchdog, firms must have at least 40% women at the board level, at least one woman in an executive position, and at least one board member from a black or ethnic minority background, or explain failure to comply.

According to the regulator, the ‘comply or explain’ clause allows for “flexibility” for smaller firms or those based overseas.

Companies must also disclose a standardised breakdown of their board and executive management makeup by gender and ethnicity.

Controversially, the FCA has said companies have the “flexibility” to report on the basis of either sex or gender identity.

In other words, firms may decide how they define “women” and whether their definition includes trans women.

During an initial consultation last summer, the regulator said it would consider requesting reports on broader aspects of diversity, including sexual orientation and lower socio-economic background, though the finalised rules have not taken these factors into account.

According to the policy document: “At this time, we have not decided to extend our reporting requirements but have aimed to encourage reporting on wider aspects of diversity through our changes to the corporate governance rules in DTR 7. This could provide additional data for us to consider further steps in this area.”

Women on Boards UK CEO, Fiona Hathorn, said: “Whilst we applaud that the FCA rules address ethnicity, we advocate a fully intersectional approach to reporting as proposed in the original consultation. Firms need to tackle all forms of diversity within their organisations, including sexual orientation and disability, to ensure that boards of the future are truly reflective of the societies that they serve.”