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FCA sets specific targets and related reporting requirements for board and senior management diversity
Publication date: 22 Apr 2022
uk In brief 2022-16
Key points
The Financial Conduct Authority (FCA) has published Policy Statement PS22/3, which aims to improve transparency on diversity at board and senior management level. Following consultation in 2021, this requires premium and many standard listed companies to include a statement in their annual report setting out whether they have met specific board diversity targets on gender and ethnicity on a ‘comply or explain’ basis, along with a specific set of numerical disclosures and further information on their diversity policy, including at committee level. The final rules apply to accounting periods on or after 1 April 2022, but early adoption is encouraged.What is the issue?
In July 2021, the FCA released a consultation (CP21/24) proposing to change the Listing Rules to require companies to publish annually, on a ‘comply or explain’ basis, a statement as to whether they meet a number of board diversity targets on gender and ethnicity, along with diversity data on their boards and executive management. This is the first time that specific diversity targets have been set by either the FCA or the Financial Reporting Council (FRC).
The proposals were finalised in Policy Statement PS22/3 in April 2022, with the introduction of Listing Rules LR 9.8.6R(9) and LR 14.3.33R(1). The Policy Statement also includes a specific format for the numerical disclosures and, through changes to the Disclosure Guidance and Transparency Rules (DTR 7.2.8A), it requires further information on an issuer’s diversity policy, including at committee level.
The targets and reporting requirements
The diversity targets that have been set are as follows:
- At least 40% of the board to be women.
- At least one of the senior board positions (Chair, CEO, SID or CFO) to be a woman.
- At least one member of the board to be from a minority ethnic background (which is defined by reference to categories recommended by the Office for National Statistics).
The annual statement will need to set out whether the issuer has met the targets and:
- The reference date during the period that has been used (and, where this is different from the reference date used in respect of the previous accounting period, an explanation of why).
- 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, in-scope companies are required to publish diversity data on board positions (Chair, CEO, SID and CFO) and executive management in a standardised table format.
Issuers are also required to explain their approach to collecting the data, and the FCA has provided guidance on this in LR 9.8.6I G and LR 14.3.36G.
Changes to the DTR
DTR 7.2.8AR requires in-scope companies to disclose, in their corporate governance statement, the diversity policy applied to their board, or to explain why no such diversity policy is applied. The Policy Statement expands these 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.
Who does it apply to and when?
Scope
The companies in scope for the new Listing Rules are UK and overseas issuers with equity shares, or certificates representing equity shares (that is, GDRs), 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 LR 5.6.5AR and issuers of listed debt and debt-like securities, securitised derivatives or miscellaneous securities.
Timing
The final rules will apply to accounting periods starting on or after 1 April 2022; however, the FCA encourages companies whose financial years began before then (from 1 January 2022) to consider reporting on the targets and making numerical disclosures in relation to their current accounting period on a voluntary basis. Note that the applicable date has been moved back since the CP21/24 consultation, which was on the basis of periods starting on or after 1 January 2022.
Where do I get more details?
The full report can be accessed here. John Patterson (john.t.patterson@pwc.com) is the key contact on corporate governance matters generally.
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