Out-Law News 2 min. read
12 Aug 2013, 3:01 pm
The provisions are contained in the new Capital Requirements Directive (CRD IV) and will be the first to legally require UK businesses to set boardroom diversity targets, said Linda Jones of Pinsent Masons, the law firm behind Out-Law.com. The new requirement is reflected in recently-published consultation papers by UK regulators the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), she said.
"The regulations will not prescribe what the targets should be, but they will have to be published and businesses will no doubt be wary of publishing targets that seem too lacking in ambition," she said. "While the requirement only applies to financial institutions at the moment, it may be a taste of things to come for other large businesses."
"The new Governor of the Bank of England, Mark Carney, has recently signalled his desire to see more women in his senior team and the review of the Davies report on women on boards in April this year led to comments from Government ministers that progress seemed to be slowing and that more needed to be done," she said.
Although most "sophisticated financial services companies" would already have a clear diversity agenda in place, the regulators and Bank of England were sending a "clear message" that "more needs to be done and UK boardrooms have much to gain from greater representation of women at the top table", she said.
"These proposals, which emanate from an EU directive, represent a step change for financial institutions," she said. "If the regulations are seen to be helpful in financial services, it would seem only to be a matter of time before they are rolled out to other sectors."
CRD IV is the EU's new legislative package for credit institutions and investment firms which will replace the existing Capital Requirements Directive. It must be implemented into national law by 1 January 2014. CRD IV will bring European banks into line with the requirements of the Basel III international banking agreement, finalised in 2010 in response to the banking crisis. Changes will also be introduced in relation to remuneration and bankers' bonuses, governance and transparency requirements, risk coverage and sanctions.
Once the new regime comes into force, large banks, building societies and investment firms will be required to set diversity targets for their boards and to publish a policy on how that target will be achieved. If the firm has a nomination committee, it will have to take account of the balance and diversity of its board when making nominations. Smaller firms will not be required to set targets, however all firms regulated by the PRA or FCA will be required to publish a policy setting out how they propose to promote diversity in the boardroom.
The PRA will set out its finalised rules in a policy statement, due to be published in December 2013. The changes set out in the FCA's consultation paper will be included in the Systems and Controls sourcebook, part of the FCA Handbook, from 1 January 2014; and will be set out in a policy statement to be published later this year.
EU Justice Commissioner Viviane Reding had previously proposed the introduction of mandatory 40% representation on the boards of all publicly-traded EU companies; however, the introduction of a legal requirement was dropped by the Commission last year after resistance from member states including the UK. A proposed new directive instead calls for a "40% objective" in non-executive board member positions in publicly listed companies by 2020.
Several EU member states including Belgium, France, Italy, the Netherlands and Spain have already introduced rules on gender quotas for company boards, while other counties have insisted on gender balance on the boards of state-owned companies. Norway, which is not an EU member, already has a 40% quota. In the UK, a 2011 review into gender diversity on company boards led by former trade minister Lord Davies recommended that the FTSE 100 leading companies should aim to have at least 25% female representation by 2015.
