UK financial regulators look to strengthen mandatory DE&I disclosures

The FCA and PRA have proposed requiring disclosure beyond gender and ethnicity for the largest firms.

The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have opened a consultation on proposals to mandate diversity disclosures beyond existing gender and ethnicity reporting requirements for the largest UK firms.

The financial regulators said they have developed measures to tackle misconduct such as bullying and sexual harassment, as well as deliver “better internal governance and risk management”.

The move comes in the wake of a call for evidence by the Treasury Committee of the UK parliament on “Sexism in the City”, which closed at the start of September.

The FCA’s existing rules, which came into force in April 2022, require listed companies to report against targets on female and ethnic minority representation on boards and executive management as part of their financial reporting.

The rules work on a “comply or explain” basis. They require at least 40 percent of the board to be women, one of the senior board positions to be held by a woman, and one board member to be from an ethnic minority background.

The new proposal would mandate firms with more than 250 people to disclose on age, disability, ethnicity, religion, sex and sexual orientation across their entire workforce.

Additionally, it suggests that companies report on voluntary demographic characteristics including gender identity, parental and/or carer responsibilities, and socioeconomic background. The FCA said it would “consider moving to mandatory reporting [on these metrics] at a later date”.

The new regulatory framework builds on work outlining new DE&I measures in the financial sector conducted by the FCA in July 2021. The study met with “broadly positive” reactions and respondents “endorsed regulatory action”, according to the FCA.

The largest firms would also have to set targets to address underrepresentation and to develop a diversity and inclusion strategy outlining how it will meet its goals.

The FCA has also proposed incorporating non-financial misconduct into its broader conduct rules, which would be enforced for all firms.

For the first reporting cycle, firms could report data on a “comply or explain” basis, with full reporting being enforced from the second reporting window in 2026.

The consultation is open until 18 December, with the regulators expected to issue the final rules next year.

The Canadian Securities Administrators also launched a consultation in April on corporate diversity disclosure rules.

One of the two proposed approaches would require mandatory reporting on the representation of five designated groups, specifically women, Indigenous peoples, people from an ethnic minority background, disabled people, and LGBTQ+ persons, on boards and in executive officer positions.