EU watchdogs: Financial services bosses need gender diversity and 'courage'

European financial services firms should introduce gender diversity targets and prove their management has the “courage, conviction and strength” to be independent, EU regulators have announced.

The European Securities and Markets Authority (Esma) and the London-based European Banking Authority (EBA) said firms should have “a quantitative target” to boost female representation, in jointly issued guidelines on the suitability of management for their roles.

Firms should also assess whether their directors have “independence of mind”, with the “courage, conviction and strength to effectively assess and challenge” their other managers, as well as assessing conflicts of interest including economic interests and even “political relationships”.

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The guidelines take effect starting at the end of June 2018.

On promoting diversity, the report said: “The diversity policy for significant institutions should include a quantitative target for the representation of the underrepresented gender in the management body.”

Big firms should also set out an “appropriate timeframe” for the targets to be met as well as how the firms will hit them. They should then document whether they are hitting those targets in an annual review of the management board structure. Smaller firms need only report "in a qualitative way", the guidelines add.

The report makes no mention of ethnic diversity, although it does suggest diversity includes “geographical provenance” of management.

The guidelines were issued in an attempt to harmonise the assessment of management suitability with new regulations under the latest Capital Requirements Directive (known as CRD IV) and the new Markets in Financial Instruments Directive (Mifid II).

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The new guidelines “aim to remedy weaknesses that were identified during the financial crisis”, the joint report says.

The EBA and Esma have the power to issue guidelines in their areas of regulation, which regulated firms have to take into account. National regulators will police the application of the guidelines with a “comply or explain” approach.

The report received pushback from financial services firms, with a summary of responses noting that some said the guidelines were “too prescriptive”, while others questioned the legal mandate of the regulators.

The report notes that some firms objected to new criteria enforcing the independence of directors. The firms said the requirements would “lead to the need for a significant additional number of independent members within the management body”.

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Full story: EU watchdogs: Financial services bosses need gender diversity and 'courage': City A.M.

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