Throughout 2012 a series of roundtable discussions were held in order to assess the current diversity programs and polices in place within the financial industry. As a result of these talks, six financial agencies: the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Consumer Financial Protection Bureau, and the Securities and Exchange Commission (the “Agencies”), proposed a set of diversity and inclusion standards. These standards, titled the “Proposed Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies and Request for Comment” (the “Policy Statement”), were published on October 25, 2013, with the 60-day comment period to end on December 24, 2013.  This Policy Statement helps to implement a part of the Dodd-Frank Act, which requires each financial agency to establish an Office of Minority and Women Inclusion, and assign a director who is responsible for all agency matters relating to diversity in management, employment, and business activities.

What the Proposed Standards Will Do

The proposed Policy Statement sets out uniform standards for regulated entities in four key areas: (1) organizational commitment to diversity and inclusion; (2) workforce profile and employment practices; (3) procurement and business practices and supplier diversity; and (4) practices to promote transparency of organizational diversity and inclusion.  The Agencies advise that each standard will be tailored to the regulated entity’s size and other relevant characteristics such as total assets, number of employees, geographic location, and community characteristics. Entities that are affected by the Policy Statement include financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants, and providers of legal services.

The Policy Statement also takes into account Section 342(b)(4) of the Dodd-Frank Act, which states that “[n]othing in paragraph (2)(C) may be construed to mandate any requirement on or otherwise affect the lending policies and practices of any regulated entity, or to require any specific action based on the findings of the assessment.” Thus, the Agencies will not use the traditional examination or supervision process to assess whether the proposed standards are being met, but will rely on voluntary self-assessments as well as monitor entity websites and the information voluntarily submitted to the Agencies by each entity.
The Policy Statement is expected to go into effect shortly after the close of the comment period on December 24, 2013.

What Regulated Entities Should Consider

Although the proposed standards are not mandated but rather serve as a best practice guide, regulated financial entities should consider reviewing their organization practices to ensure the following:

  • Organizational commitment to diversity and inclusion: Regulated entities should incorporate diversity and inclusion goals into their strategic plans for employment, including in their hiring, recruiting, retention and promotion strategies. Further, entities should ensure that key management is on board with the diversity policies and that they regularly and periodically conduct educational programs on equal employment opportunities, diversity, and inclusion.
  • Evaluate and assess workforce metrics using employee data: Entities that are already required to file an annual EEO-1 report or an annual Affirmative Action Plan should utilize that information to assess diversity efforts such as recruitment, applicant tracking, hiring, promotions, separations, career development support, coaching, executive seminars, and retention across all levels of the organization. Entities not currently required to collect such employee information should create a plan to collect such employee metrics and utilize them to assess diversity efforts.
  • Implement and utilize practices that help create diverse applicant pools: Regulated entities should consider using recruitment efforts that help create diverse applicant pools, including: outreach to minority and women organizations, outreach to educational institutions that serve significant minority and women student populations, and participating in events to attract minorities and women and inform them of potential employment opportunities.
  • Ensure that a supplier-diversity policy is in place: Regulated entities should implement a supplier-diversity policy, which provides minority-owned and women-owned businesses with a fair opportunity to compete in the procurement of business and services. Entities should assess and monitor the effectiveness of their policies by using metrics such as annual contract spending by the entity, percentage of contracts with minority-owned and women-owned sub-contracts, percentage of funds spent with diverse contractors, and the demographics of a contractor’s or sub-contractor’s workforce.
  • Promote transparency and make diversity efforts available to the public annually: Regulated entities should make the following information available to the public annually in order to promote transparency:
    • Their diversity and inclusion strategic plan;
    • Any progress made in achieving the diversity and inclusion in their workforce, including any current workforce and supplier demographics;
    • Current employment opportunities and any potential opportunities that may be coming up; and
    • The availability and use of mentorship and development programs for employees and contractors.

Entities regulated by the Agencies who have proposed the Policy Statement should begin planning to make the changes above.  Regulated entities should assess their current diversity and inclusion efforts and begin to collect metrics as soon as possible, as the regulations will go into effect shortly after December 24, 2013.