On Wednesday 20 April 2022, the FCA published Policy Statement 22/3: Diversity and inclusion on company boards and executive management. This statement sets out the FCA's final policy decision based on their proposals originally outlined in Consultation Paper 21/4. The publication of PS 22/3 has come about as a result of the FCA's conscious efforts to raise the profile of diversity and inclusion (D&I) within the financial services sector. Our March 2021 FinBrief offers a useful background to the introduction of D&I within the financial regulatory sphere.

This FinBrief considers how the reporting rules are going to change in light of PS 22/3, who these new rules are going to apply to and when these changes are going to come into force.


PS 22/3 summarises the responses of over 500 stakeholders to the proposals outlined in the FCA's earlier consultation paper. The stated aims of PS 22/3 are to "improve transparency on the diversity of company boards and their executive management for investors and other market participants, increasing engagement on this area and informing investment decisions". As discussed below, the regulatory changes proposed by the FCA in this publication are a timely response to the political, business and societal spotlight now being shone directly onto the diversity and inclusivity of regulated businesses.

What is changing as a result of PS 22/3?

Firstly, the FCA Handbook is being updated with the addition of two new Listing Rules, namely LR 9.8 6R(9) and LR 14.3.33R(1). These rules impose "an ongoing listing obligation upon those 'in-scope' companies to include a statement in their annual financial report setting out whether they have met specific board diversity targets on a 'comply or explain' basis, as at a chosen reference date within their accounting period and, if they have not met the targets, why not".

The specific board diversity targets are as follows:

  • 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)) is a woman; and
  • At least one member of the board is from a minority ethnic background.[1]

Companies will also have to set out in their statement:

  • the reference date used, and where this is different from the reference date used in respect of the previous accounting period, an explanation of why; and
  • any changes to the board that have occurred between the reference date and the date on which the annual financial report is approved that have affected the company’s ability to meet one or more of the targets.

The 'comply or explain' approach grants companies the necessary flexibility to provide an accurate and context-specific account of their board composition and diversity framework. There may be various justifiable reasons these targets are not met but companies will now be held to account and must actively engage with the FCA as regulator to explain these reasons.  

Secondly, new Listing Rules LR 9.8.6R (10) and LR 14.3.33R(2) will now also mandate that in-scope companies publish numerical data on the sex or gender identity and ethnic diversity of their board, senior board positions (Chair, CEO, SID and CFO) and executive management. This information is to be reported in a standardised table format which can be found at Annex 2 of PS 22/3.

Once again, regulated companies are afforded a degree of flexibility in their method of data collection providing they can explain their approach and demonstrate consistency in criteria and process across both the individuals being reported on and for reporting against the targets and numerical disclosures.[2]

To provide extra context when making their compulsory reports companies are encouraged to include the following additional information:

  • a brief summary of any key policies, procedures and processes, and any wider context that it considers contributes to improving the diversity of its board and executive management;
  • any mitigating factors or circumstances which make achieving diversity on its board more challenging (for example, the size of the board or the country where its main operations are located); and
  • any risks it foresees in being able to meet or continue to meet the board diversity targets in the next accounting period, or any plans to improve the diversity of its board.

Finally, in the context of corporate governance, Disclosure Guidance and Transparency Rule DTR 7.2.8AR, is also to be amended by the FCA following the publication of PS 22/3. The diversity reporting requirements in corporate governance statements are to be expanded to incorporate a broader range of diversity characteristics into existing board diversity policy disclosures (e.g. to include sexual orientation, socio-economic background and disability). Thereafter, it is proposed that the general diversity policy disclosure requirement is extended to other key board committees such as audit, remuneration and nominations.

Who will these measures apply to?

The additional reporting requirements contained in the new listing rules will apply to 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.

Closed-ended investment funds and sovereign controlled companies will fall within the scope of this definition. However, it is important to note that due to their corporate form the following types of entity are out-with the scope of the new Listing Rules:

  • Open-ended investment companies;
  • "Shell companies" (defined as per LR 6.5AR); and
  • Issuers of listed debt and debt like securities, securitised derivatives or miscellaneous securities.

 The amendments to the corporate governance rules will apply to certain UK issuers admitted to UK regulated markets and, via the Listing Rules, also encompass certain overseas listed companies (subject to the existing exemption for small and medium companies (DTR 1B.1.7R)).


Regulated companies will be required to make these new D&I disclosures in their annual reports for financial years starting on or after 1 April 2022. Despite this official start date, the FCA is actively encouraging those companies whose financial years began before April 2022 (i.e. from January 2022) to consider reporting on the targets and making numerical disclosures in relation to their current accounting period on a voluntary basis. In practical terms, this means that the new disclosure requirements will begin to appear in annual financial reports published from around quarter two in 2023 onwards.

 The FCA have stated that the new rules will be reviewed within 3 years to "assess whether the nature and level of targets we are setting remain appropriate and sufficiently ambitious".


The publication of PS 22/3 is significant for all those operating within the financial services industry. It is the first definitive statement by the FCA on how regulated firms must tackle diversity and inclusion in the future. Ultimately, the statement demonstrates the evolution of the FCA's role as regulator, moving from pure financial services regulation to the broader regulation of social mobility within financial services. Clear targets, timescales and metrics for measuring and increasing diversity have now been set and the FCA is responsible for the monitoring and supervision which will ensure that the pledges made in this policy statement are delivered into practical change within the industry. The next chapter for D&I within financial services regulation is now under way.   


[1] Minority ethnic background defined as per the following criteria: Asian/Asian British; Black/African/Caribbean/Black British; Mixed/Multiple Ethnic Groups; or Other ethnic group, including Arab.

[2] Guidance in LR 9.8.6IG and LR 14.3.36G.

The authors

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