FINRA has recently taken steps to advance diversity and inclusion in the broker-dealer industry.
Regulatory Notice 21-17
On April 29, 2021, FINRA issued Regulatory Notice 21-17, seeking comments on supporting diversity and inclusion in the broker-dealer industry.1 FINRA stated that it is committed to supporting efforts by the industry to foster diversity, inclusion and equal opportunity. The request for comment noted that regulatory agencies such as FINRA have an opportunity to evaluate how their rules and actions may have unintended disparate impacts on those within the industries they regulate and how they may unintentionally impede diversity and inclusion. It enumerated various initiatives FINRA has undertaken to foster greater diversity, inclusion and equal opportunity, including establishing an internal Racial Justice Task Force, hosting an Annual Diversity Summit, creating diversity-focused programming at the FINRA Annual Conference, expanding eligibility for the Securities Industry Essentials Exam and proposing to implement the recommendations of the Securities Industry/Regulatory Council on Continuing Education regarding enhancements to the continuing education program for broker-dealer industry professionals. In connection with these efforts, FINRA requested comments by June 28, 2021 “on any aspects of our rules, operations and administrative processes that may create unintended barriers to greater diversity and inclusion in the broker-dealer industry or that might have unintended disparate impacts on those within the industry.”
Remarks by FINRA’s chair
On May 20, 2021, FINRA chair, Eileen Murray, participated in a virtual fireside chat at FINRA’s Annual Conference with FINRA CEO, Robert Cook, during which Ms. Murray discussed her hopes to see more accountability and standardization in the reporting of diversity and inclusion efforts within firms in the industry.2 Ms. Murray proposed that more standardized metrics around diversity and inclusion are needed, and that tying executive compensation to diversity goals would make a “world of difference.”
- Tying executive compensation to diversity and inclusion metrics
Ms. Murray emphasized the need for accountability to drive better metrics. She recalled that women held only one-half of one percent of leadership positions when she started her career in the industry in the mid-1980s. Although that number has currently risen to 17 percent, Ms. Murray expressed frustration that not enough progress has been made. She explained that while 50 percent of new hires are women, that number “dwindles dramatically” as you go up the ranks. Ms. Murray acknowledged that many firm leaders talk about the importance of diversity and have well-intentioned initiatives, but their efforts fall short because there is no accountability. The “real key” is to ensure that the diversity and inclusion strategies and goals are “part of senior management’s compensation” because “[i]f it's measured, it'll be managed,” and if it is not measured, people will not focus on it.
- Standardized and increased ESG reporting
Mr. Murray commended companies pushing for the disclosure of diversity measures, citing Nasdaq Stock Market LLC (Nasdaq), which filed a proposal with the Securities and Exchange Commission to adopt listing rules that would enhance board diversity and transparency among companies listed on its exchange. Specifically, the proposed rules would require most Nasdaq-listed companies to (1) have, or explain why they do not have, at least two “diverse” members of their boards of directors; and (2) publicly disclose diversity statistics regarding their boards of directors.3
Ms. Murray suggested that ESG reporting standards that mirror financial reporting would alleviate the complicated, burdensome and incompatible ESG reporting practices the industry has now.
Going forward
FINRA and much of the rest of the financial services industry are at the beginning stages of these efforts.
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1. FINRA, Regulatory Notice 21-17, https://www.finra.org/rules-guidance/notices/21-17#notice.
2.This Legal Alert relied on two sources that covered Ms. Murray’s presentation: (1) Al Barbarino, FINRA Chair Suggests Tying Exec Pay to Diversity Efforts, Law360, https://www.law360.com/articles/1386757/finra-chair-suggests-tying-exec-pay-to-diversity-efforts; and (2) Kenneth Corbin, FINRA chairwoman wants more accountability on diversity, ESG, FinancialPlanning, https://www.financial-planning.com/news/finra-chairwoman-wants-more-accountability-on-diversity-esg.
3.Eversheds Sutherland Legal Alert, “Diversity boost in the boardroom: Nasdaq proposes new rules to spark increased board diversity for listed companies,” https://us.eversheds-sutherland.com/NewsCommentary/Legal-Alerts/238377/Diversity-boost-in-the-boardroom-Nasdaq-proposes-new-rules-to-spark-increased-board-diversity-for-listed-companies.
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