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FCA consults on proposals to improve diversity and inclusion on company boards and executive committees

  • United Kingdom
  • Corporate


The FCA has published a consultation paper setting out its proposals to amend the UK Listing Rules (LRs) and Disclosure Guidance and Transparency Rules (DTRs) in relation to diversity on boards and executive committees.

Summary of proposals

Proposed changes to the Listing Rules

The FCA proposes to add new requirements to the Listing Rules  (in LR 9.8.6R(9) and LR 14.3.27R(1)) requiring companies in scope (see further below) to include a statement in their annual financial report setting out whether the listed company has met the following targets on board diversity at a chosen reference date within its accounting period:

  • at least 40% of the board are women (including individuals self-identifying as women);
  • at least one senior board member (chair, CEO, Senior Independent Director or CFO) is a woman (including individuals self-identifying as women); and
  • at least one board member is from a non-White ethnic minority background (as categorised by the ONS).

If companies in scope have not met the targets, they would have to explain the reasons why not. Companies would also have to set out any board changes that have occurred between the company’s chosen reference date and the date on which the annual financial report is approved that materially affected the company’s ability to meet one or more of the targets.

Under the proposals, companies in scope would also have to publish, in a standard format, numerical data on the gender and ethnic diversity of their boards, senior board positions and the most senior executive management. The FCA also seeks views on whether in future it should require data on sexual orientation, and extend reporting to one level below executive-level.

The FCA also proposes to include guidance for in-scope companies that they may wish to include the following in their annual report to provide further context:

  • a brief summary of any key policies, procedures and processes, and any wider context, that they consider contributes to improving the diversity of the board and executive management;
  • any mitigating factors or circumstances which make achieving diversity more challenging; and
  • any risks they foresee in meeting the targets in the next accounting period, or any plans to improve board diversity.

The new Listing Rule requirements would apply to UK and overseas companies with a premium or standard listing of shares. This will include closed-ended investment funds (although , these issuers will be permitted to adjust their disclosures on senior board positions and their numerical data disclosures where these are not applicable, provided they set out the reasons why those disclosures are inapplicable), sovereign-controlled companies and companies with UK-listed global depositary receipts (GDRs) that represent shares. The FCA proposes to exclude open-ended investment companies (OEICs) and shell companies from the new Listing Rule requirements.

Proposed changes to the DTRs

The FCA is also proposing amendments to the DTRs (DTR 7.2.8AR) to indicate that a company's disclosure on its diversity policy should also include the diversity policy applied to its remuneration, audit and nominations committees; and also cover aspects such as ethnicity, sexual orientation, disability and socio-economic background. It also proposes adding guidance that companies may include numerical data on the diversity of the board and committees in their description of the results in the reporting period.

The above provisions of the DTRs apply to UK companies admitted to a UK regulated market (such as the main market of London Stock Exchange) and also to certain overseas listed companies. There are exemptions for companies that qualify as a ‘small’ or ‘medium’ company. Companies in scope currently have to include in their corporate governance statement a description of any diversity policy applied to the  issuer’s administrative, management and supervisory bodies with regard to aspects such as age, gender, or educational and professional backgrounds. If an issuer does not apply any diversity policy, they must explain why in the corporate governance statement. The FCA are not proposing any changes to the companies in scope of the existing requirements.

Reasons for and impact of the changes

The UK's FCA notes that whilst there have been voluntary initiatives, such as the Hampton-Alexander Review on women on boards and the Parker Review setting targets for directors ‘of colour’ on boards, these have been limited to FTSE 350 companies. The proposals also follow other initiatives to improve the information available to investors about the companies they invest in, including the growing emphasis on reporting on performance against environmental, social and governance (ESG) factors and metrics. The FCA also notes that there have been similar board diversity proposals in other jurisdictions, including NASDAQ in the US, Hong Kong, Japan, Australia and Singapore.

The consultation also compliments the recent joint FCA/PRA Joint Discussion Paper on diversity and inclusion in the financial services sector (see the Eversheds Sutherland briefing here).

If adopted, the proposals will represent an additional compliance and disclosure obligation for companies listed in the UK, at a time when the UK government has stated that it intends to increase the attractiveness of the UK as a listing venue, and there are ongoing consultations on other changes to the Listing Rules and the UK Prospectus regime that are intended to facilitate this. The FCA is not proposing any exemptions from the new Listing Rules obligation for overseas issuers or smaller companies. The FCA state that they have considered whether the proposals may make a UK listing more onerous and less attractive, particularly for overseas companies and for smaller companies which may have fewer directors. However the consultation paper notes that the targets are set on a “comply or explain” basis, and point to the UK leading in terms of high standards of corporate governance and market integrity. The FCA will consider providing additional guidance for smaller companies if necessary.

Next steps

The consultation closes on 20 October 2021. Subject to the outcome, the FCA then intends to make the relevant rule changes by late 2021 to apply to accounting periods starting on or after 1 January 2022.

Useful links

Diversity and inclusion on company boards and executive committees Consultation Paper CP21/24