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  • UK Listings Regulator Consults on Tightening Diversity Requirements for Listed Companies

    The U.K. Financial Conduct Authority has opened a consultation on proposals to amend the requirements on diversity and inclusion on listed company boards and executive committees. The proposals include changes to the Listing Rules and the Disclosure and Transparency Rules, including guidance. The consultation closes on October 20, 2021. The FCA intends to publish final rules before the end of 2021 and for the new requirements to apply to accounting periods starting on or after January 1, 2022. This means that annual financial reports published for 2022 in spring 2023 would include the reporting changes.

    The proposals include:

    1. New provisions in the Listing Rules to require certain companies to include in their annual financial reports: (i) statements on whether they have achieved certain targets for gender and ethnic minority representation on their board, on a comply or explain basis and (ii) a numerical disclosure on the gender and ethnic diversity of a company's board, senior board positions, and executive management team.

    The proposed targets are at least 40% of the board should be women, at least one of the senior board positions (Chair, CEO, SID or CFO) should be held by a woman (including individuals self-identifying as a woman) and at least one member of the board should be from a non-White ethnic minority background (as classified by the Office of National Statistics). Companies that do not meet all of the targets would be required to indicate which ones have not been met and provide an explanation.

    These proposals would apply to U.K. and overseas issuers with equity shares, or certificates representing equity shares, admitted to the premium or standard segment of the FCA's Official List. Open ended investment companies and "shell companies" would be excluded, as would issuers of debt securities or securitized derivatives.

    The FCA is also proposing guidance to encourage in-scope companies to include in their annual financial reports summaries of any key policies and procedures that contribute to improving the diversity of the board, any mitigating factors for not achieving diversity and any risks that the company may not achieve diversity or continue to achieve diversity in the future.

    2. Changes to the DTR rule on disclosure obligations (DTR 7.2.8AR) to direct further specificity than currently required. The FCA is proposing that a company's disclosure on its diversity policy, if there is one, should include information on how the diversity policy applies to board committees and should cover diversity aspects such as ethnicity, sexual orientation, disability and socio-economic background. The FCA does not intend to change the scope of the DTR rule, which applies to certain U.K. issuers admitted to U.K. regulated markets and certain overseas listed companies. The exemption for small or medium companies will remain.

    The FCA, the Prudential Regulation Committee and the Bank of England have separately published a discussion paper on diversity and inclusion in the financial sector.

    View the FCA's consultation paper (CP21/24).