On 28 July 2021, the FCA published Consultation Paper 21/24: Diversity and inclusion on company boards and executive committees (CP21/24).

The key proposals in CP21/24 include:

  • The FCA wants to change the Listing Rules to require, as an ongoing listing obligation, issuers that are in scope (see below) to disclose publicly in their annual financial report whether they meet specific board diversity targets on a ‘comply or explain’ basis. The targets the FCA are consulting on are:
    • at least 40% of the board should be women (including those self-identifying as women);
    • at least one of the senior board positions (Chair, Chief Executive Officer, Senior Independent Director or Chief Financial Officer) should be a woman (including those self-identifying as a woman); and
    • at least one member of the board should be from a non-white ethnic minority background (as referenced in categories recommended by the Office for National Statistics).
  • Alongside the ‘narrative’ comply or explain disclosure, the FCA wants to require companies to publish data in their annual financial report on the composition of their board and the most senior level of executive management by gender and ethnicity, as of a specified date during their accounting year. This would be produced in a standardised table format (set out in Annex 2 of CP21/24). The FCA is also seeking views on whether in the future it should consider requiring data on representation by sexual orientation at these levels, and / or whether to extend the diversity data reporting to capture one level below executive-level management.
  • The FCA proposes to amend DTR 7.2.8AR, which requires companies in-scope of that rule to disclose in their corporate governance statement the diversity policy applied to their board (where such a policy is applied), or to explain where no such diversity policy is applied. Under the FCA’s proposed change, DTR7.2.8AR would be amended to:
    • indicate that this disclosure should also include how any diversity policies apply to the key committees of the board, specifically the committees on remuneration, audit and nominations; and
    • clarify that the aspects of diversity to which the diversity policy may relate could include, for example, ethnicity, sexual orientation, disability and socio-economic background (in addition to the aspects of diversity already referred to in the rule).
  • The FCA proposes a separate guidance provision which encourages companies to add, where appropriate, numerical data on the diversity of members of the boards and the committees referred to above in their description of the results in the reporting period (DTR 7.2.8AR(1)(d)).
  • At present the FCA is not proposing board-level targets or specific data disclosures on other aspects of diversity.

The companies in scope of the Listing Rule proposals are UK and overseas issuers with equity shares, or certificates representing equity shares, admitted to the premium or standard segment of the FCA’s Official List. The FCA is proposing to exclude open-ended investment companies, and ‘shell companies’ as defined in LR5.6.5AR. The FCA is not proposing to apply the proposals to issuers of debt securities, securitised derivatives or miscellaneous securities at this stage.

DTR 7.2.8AR applies to certain UK issuers admitted to UK regulated markets and, through the Listing Rules, to certain overseas listed companies, subject to existing exemptions for small and medium companies (see DTR 1B.1.7R).

The deadline for comments on CP21/24 is 30 October 2021. Subject to consultation feedback and FCA Board approval, the FCA will seek to make relevant rules by late 2021.