FCA Final Rules on Mandatory D&I Reporting of Boards and Senior Management of UK Listed Companies | Hogan Lovells

The new rules apply to all companies whose equity securities are listed in London, whether incorporated in the UK or not, whether premium or standard (and including companies with GDR shares listed in London), with the exception of investment companies with variable capital and shell companies (such as SPACs). The rules apply to closed-end investment companies with a premium listing (subject to certain potential relaxations) but not to closed-end investment companies admitted to the specialty fund segment. The rules do not apply to companies admitted to trading on AIM or which only have debt or other non-equity listed securities.

The rules are effective immediately and apply to accounting periods beginning on or after April 1, 2022. The FCA also encourages companies whose current financial year began on or after January 1, 2022 to consider complying with the new rules regarding their current accounting. period on a voluntary basis.

Board Diversity Goals

The new rules require, as an ongoing registration requirement, that all scope companies include a statement in their annual financial report indicating whether they have achieved specific board diversity goals on a “comply or explain”, on a chosen reference date. during their accounting period and, if they did not meet the targets, an explanation of why they did not.

The Board’s diversity goals are as follows:

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

Companies should disclose the reference date on which the targets were assessed (and, if different from the company’s previous accounting period, an explanation of why) as well as any changes in the board of directors that occurred between the reference date and the approval date of the annual financial report that affect the company’s ability to achieve one or more of the objectives.

Reporting sexual or gender identity and ethnic diversity

In addition to the board’s target diversity reports, companies will also be required to publish numerical data (including percentages) in a standardized tabular format on the sex or gender identity and ethnic diversity of their board of directors, executive positions of the board of directors (president, chief executive officer, SID and CFO) and general management as of the same record date.

“Executive Management” means the executive committee or the highest executive or management body below the board of directors (or, in the absence of such a formal committee or body, the highest level of managers reporting of the managing director), including the company secretary, but excluding directors and support staff.

Separate tables will be required to report on gender identity or sex and ethnicity, and should cover both board and senior management. The gender identity or sex reporting chart contemplates the inclusion of categories in addition to male and female and both charts will include a provision to flag people for whom relevant information is not specified or who prefer not to. not disclose relevant information.

The standardized format of the tables for the communication of numerical data is defined in appendix 2 of the declaration of principle, as well as in the annexes of the relevant listing rules (LR 9, appendix 2 and LR 14, appendix 1).

Data collection – approach and disclosure

Companies are required to determine for themselves how best to collect and report data on the sex or gender identity and ethnic diversity of individuals for the purposes of reporting requirements (which may include self-reporting by data subjects), but should explain the approach they choose to collect the data (including questions asked of self-reporters) and should adopt a consistent approach.

Unlike the rules proposed in July 2021 (and in light of significant feedback), the FCA has moved away from specifically stating in the final rules that men and women include people who identify as such, leaving the decision to individual companies. . whether to report on the basis of sex or gender identity.

Additional Disclosure Guidelines

The new rules also include non-binding guidelines that, in addition to complying with mandatory disclosure requirements, a company may also choose to include the following additional information in its annual financial report to provide additional context:

  • a brief summary of all key policies, procedures and processes, and any broader context that it considers to contribute to improving the diversity of its Board of Directors and senior management;
  • any mitigating factors or circumstances that make it more difficult to achieve diversity on its board (for example, the size of the board or the country where its principal activities are located); and
  • any risks that it foresees being able to achieve or continue to achieve board diversity goals in the next accounting period, or any plans to improve the diversity of its board of directors .

Exceptions to new requirements

In cases where a company has board members or senior executives located in countries where local data protection laws prevent the collection or publication of relevant personal data, the company is not required to report the relevant information, but must instead explain why it is unable to do so. so.

The new rules also allow closed-end investment funds to adjust their information on management positions and numerical information in the event that this information is inapplicable, provided that they state the reasons why the information is inapplicable. . Generally, this should allow closed-end investment companies that do not have internal management to adjust their disclosures accordingly.

Diversity Policy Disclosures

The FCA has also updated the requirements for corporate governance statements contained in directors’ reports so that the description of the relevant company’s diversity policy must now extend to compensation, audit and appointment of the company as well as to the board of directors itself and cover ethnicity, sexual orientation, disability and socio-economic background, as well as the current requirement to take into account the age, sex and educational and professional background. Companies can choose to include figures on the diversity of their committees. Companies can continue to choose not to have a diversity policy and explain why they don’t.

Future review

The FCA intends to review the new rules in three years to assess whether the relevant council objectives remain appropriate, both in terms of levels and focus, including whether other objectives for other aspects of diversity must be included.

Next steps

Businesses should start considering the following:

  • If, in the case of companies with current financial years beginning on or after January 1, 2022 but before April 1, 2022, comply with the new requirements on a voluntary basis for the current financial year.
  • Who will be affected by the new rules, particularly in the definition and identification of “executive management”.
  • How the company may wish to address sex and gender identity reporting and relevant disclosure categories.
  • How relevant data will be collected and how the process and nature of the data collection process will be disclosed.

If the company has data subjects in locations where local data protection laws must be considered.

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