The New York State Department of Financial Services Will Start Collecting Diversity Data

This blog was coauthored by Elizabeth Sisul.

The New York State Department of Financial Services (DFS) continues to establish itself as one of the state banking regulators committed to environmental, social, and governance (ESG) issues. Following guidance in March 2021 to New York insurers on managing climate risk and promoting diversity in their work forces, DFS recently announced its intent to begin collecting diversity data for corporate boards and management.

Letter Requires Diversity, Equity, and Inclusion in Financial Institution Leadership

In July 2021, DFS expanded its efforts to collect diversity data from regulated financial institutions in its March 2021 circular aimed at insurers on “Diversity and Corporate Governance.” The agency announced it would begin to collect and publish data relating to diversity of insurers’ corporate boards and managers. In DFS’s July 2021 industry letter, the agency reiterated many of the same arguments when it stated its expectation that “New York-regulated financial institutions make the diversity of their leadership a business priority and a fundamental component of their corporate governance.” DFS again noted the business case for diversity, citing data showing that more diverse companies benefit from increased profitability, a broader customer base, more innovation, better risk management, and a larger talent pool with higher employee satisfaction rates. The circular cited a number of statistics highlighting the lack of diversity in the financial services industry, including:

• In the financial services industry, Black and Latino employees had a less than 25% chance of being promoted or hired for a senior management or executive position compared to their white peers.
• Among banks reporting diversity data, women were less than one-third of the executive and senior-level workforce, despite representing 51% of the US population.
• Of the 378 venture-backed digital currency and blockchain companies founded between 2012 and 2018, 92% had all-male founding teams.

The agency also cited a number of actions undertaken by governments and investors to strengthen the representation of women and minorities in senior positions in the financial industry.

DFS Will Track and Publish Industry Board and Management Diversity

DFS had advice for financial institutions seeking to promote more diversity in their organizations to align with the agency’s expectations. It recommended New York-regulated institutions make diverse leadership a business priority and integrate it into corporate governance. It further advised that they pay closer attention to the diverse talent population and treat diversity as it would any other strategic priority, including “communicating its importance to stakeholders, providing a plan for how it will be achieved and explaining that plan, setting measurable goals, and tracking progress toward those goals.” Acknowledging that data collection is key to setting goals and measuring progress, DFS stated that it would begin collecting data related to board and management diversity for all New York-regulated institutions with more than $100 million in revenue, as well as from all entities authorized to engage in virtual currency business activity. It plans to publish the results in the first quarter of 2022.

Climate remains one of the most important topics in the ESG space. However, actions taken by Nasdaq, the State of California, and now by DFS to increase diversity, equity, and inclusion to create a more diverse workforce—especially at the top—signals continued momentum around the social component of DFS. New York-regulated financial institutions must start assessing their current board compositions and determine next steps to achieving more diverse leadership.