FCA Policy Statement PS22/3 – ‘Diversity and inclusion on company boards and executive management’

On 20 April 2022, the FCA introduced new Listing Rules (LR) (LR 9.8.6R(9) and LR 14.3.33R(1)) which set board diversity targets and require that, as part of their ongoing listing obligations, in scope companies include a statement in their annual financial report detailing whether they have met the specified targets.

What are the board diversity targets?

The board diversity targets introduced by the FCA are:

  • At least 40% of the board are women.
  • At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Senior Independent Director (SID), or Chief Financial Officer (CFO)) are held by a woman.
  • At least one member of the board is from a minority ethnic background (defined by reference to categories recommended by the Office for National Statistics (ONS) excluding those listed, by the ONS, as coming from a white ethnic background).

The FCA have introduced these targets on a ‘comply or explain’ basis, which means that if an in-scope company has not met the targets, as at a chosen reference date in their accounting period, then they must explain why not.

In addition, in scope companies must publish numerical data on the sex or gender identity and ethnic diversity of their board, senior board positions, and executive management. The data must be reported in a standardised table format (as at LR 9, Annex 2), and the approach to data collection must also be explained.

Which companies do the targets apply to?

The targets described above apply to all 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, including closed-ended investment funds and sovereign controlled companies.

Open-ended investment companies and shell companies are excluded from the targets, as are issuers of listed debt and debt-like securities, securitised derivatives or miscellaneous securities.

When do the targets come into force?

The targets apply to in scope companies with accounting periods starting on or after 1 April 2022, meaning that annual reports from Q2 2023 will include disclosures against the targets.

What are the aims of the policy statement?

The FCA have stated that through the introduction of these targets, it aims to improve transparency on the diversity of company boards and hopes that, through investor pressure, in scope companies are encouraged to take steps towards greater diversity. In turn, the FCA considers that this will have benefits in terms of the quality of corporate governance and the performance of in scope companies.

What our Chartered EDI survey showed is that 8 in 10 firms (both small and large) consider to a great or moderate extent that their top-level management team are accountable for the success of their EDI strategy, with responsibility cascaded through all levels. The survey also showed that 8 out of 10 believe that their firms leaders role model an inclusive culture throughout the organisation. This is positive to see, and the CII will continue to survey its Chartered firms in order to track progression.

What are the impacts on financial lines?

As mentioned above, key to these rules is the themes of transparency and consistency, which will mean that the position on D&I targets can also be accurately compared across industries and businesses. This will be fundamental to insurers when assessing risk as well as policyholders and their investors.

The rules will allow investors to make informed investment decisions and to know more about the companies they invest in. This should, in theory, reduce the scope of financial lines claims in the form of shareholder activism. However, policyholders will have to be mindful of what they represent to their investors, and seek to ensure they do not over promise and under deliver.

Furthermore, the failure to adhere to the ‘comply or explain’ obligations under the new rules could lead to greater regulatory scrutiny by the FCA and other regulatory bodies. It is also possible that the FCA will move from a comply and explain approach, to enforcement, in due course. This scenario could have an impact on both directors and officers and the policyholder entities themselves, in terms of claims for regulatory investigations.

However, whilst possible, it is unlikely that the stated targets will become mandatory given the issues that may arise – for example companies hiring solely on the basis of race or gender to satisfy targets.

At a very basic level (and not just from an underwriting and claims perspective), the requirement to disclose numerical data could also help policyholders understand problems with their own internal processes (recruitment, promotions, etc.). Data such as this can enable companies to make any necessary changes and to attract and retain talent in the long term, which in turn should improve performance.  

The reality is that an increased focus on ESG commitments- including D&I related disclosures- means that companies and their directors/officers will face increased scrutiny and challenges in the future.


It has been commented that this FCA Policy Statement is a light-touch piece of regulation, that relies heavily on investor pressure pushing in scope companies towards greater diversity.

The introduction of specific targets does not necessarily mean that issuers are inclusive and may not give an accurate insight into D&I within an organisation. Without an inclusive culture, the value of diversity, when achieved through these targets, will not be realised. Only time will tell whether the new Listing Rules will have a meaningful impact and, indeed, whether and to what extent there will be any regulatory investigations due to any failure to adhere to the ‘comply or explain’ requirements.

Although the targets could certainly go much further than they currently do, including by addressing other diversity factors, the targets are a step in the right direction. Notably, the FCA has stated its intention to review the targets in three years’ time to assess their impact and consider whether targets are required on other aspects of diversity. We also anticipate that the FCA will eventually apply these targets to all regulated companies.

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