EBA pushes for crackdown on banks ignoring EU diversity rules

The European Banking Authority (EBA) wants supervisors across the EU to crack down on banks and investment firms who flout rules on promoting diversity, after its research showed more than a quarter of firms are still ignoring requirements introduced in 2014.

The EBA, which writes the rulebook enforced by the European Central Bank and national supervisors, said on Tuesday that 27 per cent of almost 800 European banks and investment firms it reviewed had still not created the diversity policies that became a legal requirement almost a decade ago.

The EBA’s report also charted the painfully slow progress of banks and investment firms in improving the diversity of their top management teams and supervisory boards, which remain almost 75 per cent male and continue to pay men more than women for their services.

The report comes almost a decade after the EU created legal requirements mandating banks and other financial services companies to address the largely white, male and middle-aged profile of their boardrooms and executive committees in the wake of the financial crisis.

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The rules included a demand that all companies set a diversity policy for their management boards

The rules included a demand that all companies set a diversity policy for their management boards, and that larger firms set targets for improving the diversity of their leadership teams.

Adoption of the policies was better among larger institutions, where compliance was 94 per cent among a group mainly composed of large banks. But the EBA criticised that group’s approach to setting mandatory targets, with nearly 40 per cent found to have set “very low” goals, including some that aspired to less than 25 per cent female representation.

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Describing the number of companies flouting the rules as “simply not acceptable”, Bernd Rummel, policy expert at the EBA, said the Paris-based rule maker would carry out a “specific exercise” to see if supervisors were rising to the task.

The EBA wants them to use supervisory powers to force banks and investment firms to comply with rules. Those options could include higher capital requirements and restrictions on business.

The EBA claims enforcing the standards would not only make firms fairer, but also safer by combating groupthink.

If a bank is found to repeatedly breach its diversity obligations, then the measures taken by supervisors will get harder

Rummel said a discussion among the EBA’s board of European supervisors had suggested there was “a lot of willingness” to fix the problem.

Banking supervisors have already made complying with diversity rules one of the elements of their annual supervisory reviews. If a bank is found to repeatedly breach its diversity obligations, “then the measures taken by supervisors will get harder,” he said.

The EBA also wants supervisors to examine whether companies’ pay policies are “gender neutral” – as required under EU law. The EBA review found that female executive directors earned an average of 9.5 per cent less than male peers, even excluding the pay of CEOs. Female non executive directors earned almost 6 per cent less.

The EU’s policies promote diversity of gender, age, educational background and geography, but policy work has chiefly focused on gender.

Overall, the EBA found that women accounted for 18 per cent of banks and investment companies’ executive directors, up from 15 per cent three years earlier, when the data also included the UK.

“The effect is not huge,” said Rummel, detailing how the number of institutions analysed only dropped from 834 to 791 as both the UK and Norway dropped out.

Women’s representation on supervisory boards rose from 22 per cent to 26 per cent over the 2018-21 period, while the percentage of female chief executives rose from 8 per cent to 11 per cent. - Copyright The Financial Times Limited 2023