The New York State Department of Financial Services (DFS) will ask financial institutions to share their diversity data as part of an initiative to promote diversity, equity and inclusion in the banking and financial services industry, the regulator announced Thursday.
In an industry letter to New York-regulated banking institutions and non-depository financial institutions, DFS said it expects the organizations to make the diversity of their boards and senior leadership "a business priority and a key part of their corporate governance, including creating and maintaining a diverse pipeline of future leaders."
DFS said it will collect diversity data related to the gender, racial and ethnic composition of their boards or equivalent body and senior management as of Dec. 31, 2019, and 2020 from all New York-regulated banks with more than $100 million in assets, and all regulated non-depository financial institutions with more than $100 million in gross revenue. The regulator said it will also collect the same data from the state’s virtual currency businesses, including virtual currency licensees and trust companies.
DFS said the data will be collected this fall and be published on an aggregate basis in the first quarter of 2022.
"Time and time again, research reveals that corporate governance benefits from diverse leadership teams," DFS Superintendent Linda Lacewell said in a statement. "Diversity in board membership and senior management leads to companies that are more innovative and more profitable, and that connect with a broader customer base."
Lacewell cited the impacts of the COVID-19 pandemic, racial injustice and climate change as primary reasons for the need for more diversity in the state’s financial institutions.
"[I]t is now more than ever paramount that the banking and financial industries have strong boards and executive teams comprised of people with diverse experiences, skills and perspectives in order to better confront evolving risks and find new opportunities," Lacewell said. "Let’s make good on our words and move to action."
The agency said it applauds the efforts that banks and industry trade groups have made to boost the representation of people of color, women and other underrepresented groups on boards and management teams but said it recognizes that "organizations are not all starting from the same place in terms of the diversity of their leadership and workforce."
"DFS has asked regulated banks and non-depository financial instructions to assess where they stand, where they want to go and how they will get there, taking into consideration their size and other relevant factors, with a focus on improvement over time," the regulator said.
DFS said it will organize a webinar focused on diversity, equity and inclusion best practices and address specific issues the industry has encountered in its diversity efforts.
"This process is one of continual evolution and improvement, not simply an exercise in box checking, and small changes now will lead to big improvements in the future," Lacewell said.
The New York financial regulator’s letter follows the passage of a California law signed last year by Gov. Gavin Newsom, requiring public corporations headquartered in the state to achieve diversity on their boards of directors by 2023.
The Nasdaq has also made efforts to boost the diversity of the companies listed on its exchange. The stock index asked the Securities and Exchange Commission (SEC) for permission to adopt new listing rules related to board diversity and disclosure last year. The proposed rules would require companies to have at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or lesbian, gay, bisexual or transgender.
The U.S. financial services sector has long been seen as slow to diversify its leadership but has made some progress in recent months.
Jane Fraser became the first woman to lead a major U.S.-based global bank when she succeeded Michael Corbat as CEO of Citi in March.
JPMorgan Chase could be next. The nation’s largest bank promoted two women, Marianne Lake and Jennifer Piepszak, to become co-heads of the bank’s consumer and community banking unit in May, a move many industry observers say places each in a position to potentially succeed Jamie Dimon as CEO.
A report released by the House Financial Services Committee in 2019 found that among banks reporting demographic information, women made up less than one-third of the executive and senior-level workforce.
The report, which analyzed data collected in 2019, also found that bank boards were 11% Black, 5% Latino and 3% Asian; in contrast, these groups comprise 13%, 18.5% and 6% of the U.S. population, respectively.